Apple Inc. (AAPL): When Will It Boost Its Dividend? Soon.

Apple’s current dividend yield of 2.4% may not seem very attractive to income investors. But with a likely dividend increase on the horizon, and given Apple’s enviable ability to generate large amounts of free cash flow, the stock is a first-class bet for future income — especially at today’s conservative valuation.

A key metric income investors care about when analyzing the quality of a company’s dividend is the payout ratio. The payout ratio is simply equal to a company’s annual dividend divided by its annual earnings. The higher the ratio, the less sustainable the dividend if business fundamentals go awry.

Most established dividend stocks have payout ratios well over 50%. Apple’s is just 12%. Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC), two well-recognized dividend stocks in the tech sector, have payout ratios of 45% and 40%, respectively. Keep in mind: The lower, the better.

Another key measurement in assessing the quality of a company’s dividend is a its ability to generate free cash flow, or the cash that can be used to pay out dividends.

Apple Inc. (NASDAQ:AAPL) has an unearthly ability to turn $0.28 of every dollar of sales into free cash flow. That’s practically unheard of in the consumer-electronics hardware industry. Microsoft manages to do better, with a free cash flow-to-sales ratio of 38%, but this is expected — the company’s primary businesses is selling high-margin software. Intel, despite its market leadership, earns just $0.15 of free cash flow on every dollar of sales — considerably less than Apple.

Apple, therefore, has excellent prospects as a dividend stock. In fact, analysts surveyed by Bloomberg collectively believe that Apple will boost its dividend to $4.14 per share. That amounts to a dividend yield of 3.7% — far higher than today’s yield of 2.4%.

Give us a dividend
There is no denying it. Apple Inc. (NASDAQ:AAPL) has too much cash. The company will probably make an announcement to return more of it to shareholders soon.

Income investors should consider getting in on this top-notch dividend stock while the price is right.

The article When Will Apple Boost Its Dividend? Soon. originally appeared on Fool.com.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple and Intel and owns shares of Apple, Intel, and Microsoft.

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