Saturday, June 28, 2014

Apple, an (almost) perfect dividend stock

Almost everyone I talk to has an opinion when it comes to Apple (AAPL). Plenty of critics out there: Apple's innovation is lacking, profits are stagnating and Tim Cook, Steve Job's successor, would not be good enough to lead the company to a better tomorrow. They're valid points that worries traders, but the fact remains that Apple is simply a great company and an almost perfect dividend stock.

Apple has transformed from a true growth story to a real value stock. Income is more stable (and easier to predict), and the company is even issuing dividends. In particularly the dividend are very interesting if you ask me. Because if it's something Apple can do very well is to generate an enormous cash flow. The cash flow came to be almost 47 billion in the past 12 months! That's incredibly high.

Pay-out ratio

11 billion of the 47 billion was issued in the form of dividend. That means that the pay-out ratio is not even 25 percent. Given the cash flow developments and the low pay-out ratio, there's plenty room to double the dividend. The current dividend yield of 2.04 percent is a bit low, so a doubling would be more than welcome.

Apple's products fail

Critics say that there's always a chance that the new iPhone, or another product, will fail. Of course that's indeed a risk factor, but that doesn't mean anything when it comes do dividend. Apple has sold very well, year after year, and now sits on a big pile of cash. At the moment the company has more than 40 billion dollars on the balance sheet, and 100 billion in cash in other countries.

To me, it looks like the dividend is safe and solid. The company is still very conservative with the amount it issues to share holders, even though the cash flow development allows for even a doubling of the current dividend. Aside from that it's expected that the cash flow in going to grow tremendously in 2016 and 2017. For 2014 the free cash flow is estimated to be 47 billion US dollars, for 2015 it's 49 billion and add another 3 billion in 2016.

Dividend increase

Even if the cash flow doesn't grow at all, the dividend could still be paid out for years after that (and yes, even then there's still room for a dividend increase!). And if the cash flow somehow decreases then Apple can still appeal to its cash position. So, there's plenty of reasons to check out Apple's stock from a dividend investing standpoint - a pretty smart investment considering the risk is very low.

That's a safety net that makes dividend traders very happy. Apple is therefore the almost the perfect dividend stock. Almost, because its dividend is still a bit on the low side. That's perhaps the only downfall. But like I said before, Apple has plenty of room to grow!


All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.