Disappointed by Apple’s yield? Think Different

“By July of this year, Apple (AAPL) will officially be a dividend stock,” Geordy Wang writes for Seeking Alpha. “This development is no surprise for the market. Even though many of Apple’s most zealous fans have continued to hold out against the possibility of a dividend, even in the face of mounting evidence to the contrary, anyone who’s been paying attention has seen the signs coming a long time ago.”

“What may have actually taken investors off-guard is that Apple’s dividend is so conservative: at $2.65/share per quarter, that’s only a yield of 1.8%, well below consensus estimates of 2-3%,” Wang writes. “All in all, it was a rather anticlimactic announcement given the enormous amount of build up in the recent months, culminating in a two month run of over 40% in the stock price.”

“However, I would argue that such a small, conservative step is to be expected from Apple’s management. CEO Tim Cook has always been a patient man, and anyone who has heard him speak has witnessed the slow, methodical way that he thinks and communicates. Furthermore, it’s in Apple’s DNA to move slowly and carefully, and do things right instead of fast,” Wang writes. “Even though Apple’s effective payout ratio at its current distribution amount is relatively low, I fully expect that number to increase significantly in the years to come. A study of other dividend-paying technology titans will confirm an identical pattern, where they start off with a low payout ratio and continue to raise it in excess of earnings growth in the ensuing years.”

Wang writes, “Tim Cook is a very smart man who understands that cash that is not deployed is a depreciating asset that will eventually be consumed by inflation. 1.8% may not seem very high, but this is just the beginning. The best is yet to come.”

Much more in the full article here.

[Thanks to MacDailyNews Reader “David E.” for the heads up.]

13 Comments

  1. A hundred billion will disappear through inflation.

    Wow. Lose 3% per year and it disappears.

    Somebody doesn’t do his own taxes. Depreciation at 3% per year never reaches zero no matter how many years and how many billions you’re pissing away.

    1. The world and its goods are not valued in dollars anymore, nor even in gold. Oil is the de facto world currency. How many barrels of oil would $100B buy 10 years ago versus now? Yes, it will disappear.

  2. Supply and Demand … declaring a dividend means that the funds that were previously shut out may be buying in. Fixed supply of shares (or smaller supply due to buyback) combined with higher demand = rising stock price. Hopefully, this will reduce some of the volatility of the stocks and drive the contrarian short sellers away …. all leading to a more
    steady, rising stock price.

  3. Keep in mind that Tim Cook wanted to only fund the dividends from the cash in the USA and wanted to be sure that this could continue this way for years to come or until the tax laws are fixed to change the repatriation abuse. Apple can spend it here in the USA or where they made the money in the first place. I think they need a billion dollar server farm on every continent. There are lots of ways to benefit Apple without loosing 25% or 35% to taxes so they can spend it here.

  4. More likely, this move was a token dividend meant as “appeasement,” distraction, and misdirection for the easily manipulated media (and “analysts”), while Apple secretly plans for the REAL purpose of the money.

    And the stock buyback part just gives Apple an OPTION. If the AAPL keeps going up, Apple is not going to exercise that option.

    Tim Cook even said it. “The first and foremost use of cash is to make the best products in the world… We have preserved a war chest of domestic cash.”

  5. “… Apple’s dividend is so conservative: at $2.65/share per quarter, that’s only a yield of 1.8%, well below consensus estimates of 2-3%,”

    Well, getting 1.8% from Apple is a heck of a lot better than getting 0.4% (if you’re lucky) from your bank. Yet another reason I regret sitting on cash (just like Apple) for so long rather than investing more in Apple.

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