I initiated a very small starter position in Apple Inc (AAPL). This might come as a surprise for some of the dividend growth investors, but the company has changed a lot in the last couple of years.
Over the past couple of decades, the company has remained growth focused and has made a lot of money for investors and traders. But I, as a dividend growth investor, was not interested due to the lack of dividends – let alone the growth of dividends. Things started changing in the summer of 2012 when Apple declared that it will start paying out dividends. While this was seen as a shift from growth to value play for investors, some headed for the exit door and the stock suffered with a fall of over over 40% from its peak. However, over the course of last two years, it has become clear that the company is not stagnant and resting on old accords – the company still maintains the drive to innovate and push forward with new products and services.
Recent Buy Decision
- Apple has tremendous pace of innovation that continues to capture the imagination of the masses. New product launches keep coming such as new iPhones, iPads, iMacs, iWatch and launch of new services as well – such as Apple Pay. Other growth opportunities include Apple CarPlay, where the Apple ecosystem is deployed in the car console systems, where Apple has already signed up with a number of luxury and mid-tier car manufacturers.
- They have been able to command higher prices and the customers are happy to pay for it. Moreover, the brand loyalty is spectacular with some reports claiming upto 90%.
- Lots of new frontiers still exist for Apple to take a crack at – such as health, television, media etc.
- Apple has come of age and has become a more mature company and the dividends have started flowing to shareholders. Apple is also becoming more shareholder friendly – even listening to activist investors like Carl Icahn and tweaking their buyback plans.
- Apple having only started issuing dividends in 2012 started raising them out of the gate. The dividend grew by 15% in 2013 and 8% in 2014. The current payout ratio is a low 30% and considering the huge cash position that Apple holds (albeit overseas), increasing those dividends in the future should not be a problem.
- The valuation is attractive with a low P/E of 15.7, PEG of 1.29 , the company is a proven cash machine. According to my analysis, the fair value is around $140, although investors like Icahn have claimed that the Apple stock is worth $200 last week.
Summary of the stock
- Symbol: AAPL
- Quote: $97.67
- 52-week range: $70.51-$103.74
- P/E: 15.78
- Forward P/E: 13.34
- Debt/Equity: 25.67
- Yield: 1.88%