After a lot of contemplation and deciding whether to wait or pull the trigger on a purchase, I decided that it was as good a time as any to top up my investment in the largest company in the world. Last week’s weakness in the markets provided me with an opportunity to add add a few shares in Apple Inc (AAPL).
In this purchase, I was able to pick up 12 shares in Apple Inc (AAPL) on Mar 26, 2015 for $123.83, which adds $22.56 to my annual dividends.
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 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.
Earlier in the month, Apple became the newest member of the Dow Jones Industrial Average having replaced AT&T Inc (T). While this was not a major contributing factor in my decision to purchase, I like the confidence that exists in Apple even though it is the largest company in the world and can continue growing. I have no doubt in my mind that the company will sooner or later easily surpass the $1T mark in market cap value.
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. Apple recently announced that it is going to push with a new vigor on their radio service to compete with Spotify. 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. In addition, Apple is rumored to be working on its own car, which would be a fantastic product if any of the rumored designs are to be believed.
- 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%. The company does not compete in trying to race to the bottom. A luxury brand that does things in style and customers, including yours truly, is happy to pay for it.
- Lots of new frontiers still exist for Apple to take a crack at – such as health (which is one of the main focus points in the new watch product), television, media, car 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 24.7% and considering the huge cash position that Apple holds (albeit overseas), increasing those dividends in the future should not be a problem.
- Apple is able to tap into the bond market to raise money at record low yields – taking advantage of the low and negative yielding bonds in Europe. It is interesting to note that Apple has issued bonds in EU as of late.
- The valuation is attractive with a low P/E of 17, Forward P/E of 13.5, PEG of 1.28 , the company is a proven cash machine. Earnings are expected to grow at over 13% for the next five years, and I believe that is a conservative number. According to my analysis, the fair value is around $156, and is currently trading at close to 20% discount to fair value.
- Apple is expected to announce an increase in its dividend and share buyback program next month.
Summary of the stock
- Symbol: AAPL
- Quote: $124.43
- 52-week range: $71.69 – $133.60
- P/E: 17.03
- Forward P/E: 13.51
- PEG: 1.28
- P/B: 5.99
- Yield: 1.5%
What are your thoughts on this purchase? Feel free to share your thoughts below.
Full Disclosure: Long AAPL, T. My full list of holdings is available here.