Recent Buy – Apple Inc

Apple 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.

Financials

Apple Overview

Image & data from GuruFocus

 

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.

39 thoughts on “Recent Buy – Apple Inc

  1. R2R,
    I like this move. Just read an article in CNBC.com about the coming dividend increase. Check that out. I think there’s a potential for both a big increase and a special. Activists are all over this stock. Cash flow is huge, and the product pipeline is compelling (watch, TV subcription, Pay, even the car). AAPL is already the biggest holding in my portfolio so I won’t be adding more.
    -RBD

    • Thanks for the tip, RBD. I will check out the article. I definitely prefer a special dividend rather than a buyback…that would make me extremely happy indeed if there were a special dividend. The cash flow and product line is impressive indeed and the company is in a class of its own. Good to hear that your biggest holding is in Apple…

      Thanks for stopping by and sharing
      R2R

  2. Nice purchase R2R. Apple is one of those stocks I regret. Same with Tim Hortons and Costco. It’s so funny because my wife kept telling me to buy these 3 but I felt at the time they were overpriced. Damn. Look at them all now. The next pullback/ mini correction I’m gonna load up on them. Thanks for sharing and keep up the hustle. No looking back now.
    Take care my friend.

    • HAhah..listen to your wife. My wife wants me to buy SBUX – but I think its pricey…maybe I should listen to her 🙂
      I am in the same boat as you – the next pullback/correction, I will be buying more AAPL and SBUX.

      Thanks for stopping by. Keep on hustlin’
      R2R

  3. Great purchase, great company. This is one of those rare stocks that can still get you substantial growth along with a decent sized dividend along the way.

    In general, I’m not a fan of tech (but would like to own some AAPL) b/c it’s so extremely volatile and evolves so fast, but this is about one of the safest names you can get into today, the company is not going anywhere anytime soon. At least I hope not, I have too many iproducts 😉

    All the best!

    • Haha…Im sure Apple will stay ahead of the curve when it comes to innovation – and combined that with the design team, they are in the luxury class. I dont think Apple will fall from its peak anytime soon – the pipeline of products are great and I believe in the company.

      Thanks for stopping by and sharing
      R2R

  4. R2R,

    Seems like a solid buy. The cash on the balance sheet is a massive company all by itself! 🙂

    This is one I regret not buying a while ago, but there are just so many great companies out there. Which is one reason why I can’t see how/why I’d limit myself to just 20 or 30.

    Keep up the great work!

    Best regards.

    • The cash position is mind boggling – just the cash position at Apple is as big as Disney’s market cap. That is some serious amount of cash and Im sure the company will put it to good use, with a small portion of it shared with shareholders via dividends. Even that small portion will amount to quite a bit when we talk about a company the size as big as Apple.

      Best wishes
      R2R

  5. Welcome to the apple club. They are slated to increase their dividend this month and they are a machine. I expect at least the next 5 years to be pretty rosy for apple as long as they keep innovating their phones as their bread and butter

    • Hi A-G,
      Ive owned a very small position since last year, only about 8 shares – now with this purchase brings my total to 20 shares. Im sure the company will churning out great products and services of the next few years and the cash flow should benefit us shareholders.

      Looking forward to the announcement later this month.
      R2R

  6. R2R,
    Im jealous! I wanted a piece of the Apple as well but for some reason I kept finding a better deal/yield as I am looking for an income stream right now and Apple doesnt meet my entry yield for right now, but for a quality company like APPL I will definitely will make exception and I have lots of room in my portfolio. Great buy!

    Take care,
    FFF

    • FFF,
      The starting yield may be small, but if theres one company that can pay out increased dividends for years and decades to come, Apple can do it. I believe the recent cash position stands at close to $180B – which is bigger than the market cap of a company like Disney. That is some serious amount of cash – and Im sure the company will look to deploy it with steady increases in dividends for years to come. We are still very early in the cycle – with Apple becoming a dividend payer just two years ago.

      Best
      R2R

    • Thanks Tawcan. Thats always the regret isnt it? I wish I added shares years ago, but decided not to as they didnt pay dividends. Oh well…better late than never. Atleast I am early in the dividend cycle of owning the shares.

      cheers
      R2R

  7. Great purchase and welcome to the AAPL club. Glad to have you as a fellow shareholder. I purchased AAPL long before they started paying dividends primarily for growth reasons. Since then, they have started paying dividends and also increasing them and also had huge buybacks which has provided great value.
    Looking forward to great growth and dividends for a long time to come.
    DGJ

    • Thanks for stopping by and the input DGJ. Ive owned AAPL for a few months now but it was a very small position. Decided to add here now. Good on you to have picked up shares years ago. I am looking forward to their announcement later this month. Will be interesting to see how they return cash to shareholders.

      Best
      R2R

  8. Nice buy. I had shares last year but sold out at $113. It was a nice gain, but in retrospect I should have held on. The iWatch should drive revenues through the rest of the year.

    • DD,
      Thats the way things roll, isnt it? I almost added when it was around $113-$117 and missed out. I still think $123 is undervalued – we’ll see if I made the right decision. I read some reports that even if they sell 1M iWatches, it wont move much of their needle…donno if I really believe that…will be watching closely to see how iWatch is received by the public.

      Thanks for stopping by
      R2R

  9. Great buy, R2R. I’m tempted to add a tiny bit at these levels as well. I might not be able to resist if a market burp pushes it below $120. Glad you have you as a fellow Apple shareholder.

    It’s funny… a year ago I had a hard time buying Apple at what was then $550 a share and bit the bullet. It dipped below $500 not too long after and I grumbled to myself about being impatient. The irony is that those now 70 shares post-split have my largest unrealized capital gains in my portfolio.

    The Apple Watch will be telling. It’s their first new product class post-Steve Jobs and most risky considering competitors have been trying for well over a decade to penetrate the Internet watch niche with unfavorable results. Hoping they succeed with flying colors. If anyone can, they can.

    Like you said, it’s awesome being in for the early part of the dividend’s life. Same with Starbucks, which I wish I had bought more of than I did when it was below $75. It’s always harder to add at much higher levels than your initial buy. Sometimes excellence and future opportunity cannot be ignored.

    Best,
    DWC

    • DWC,
      Looks like you picked them up at a great time when the price was $550 pre-split. Those are huge gains.

      Yes, the Apple watch will be interesting to watch. Personally I dont think a lot of ppl will go crazy for it like the ipod or iphone, but then again, Ive been wrong about some things in the past – when I thought the iPad wouldnt do well. Although the craze for the tablets has fallen after some saturation. It sure is a niche product and its interesting to see Apple make a push into the health field – I think that might lead to some other developments in the future.

      I agree with the SBUX too – I remember looking at it when it was $72 and skipped it and now I wish I had bought it. I am tempted to dip my toes in a starter position to get some skin in the game and possibly add more later. Hopefully some irrational behavior in teh market will provide some good opportunities.

      Thanks for stopping by and sharing
      R2R

  10. Great move in my opinion. I’ve underestimated this company many times in the past and it always proves me wrong. Even with the run up, it appears very undervalued. The cash flow is crazy good and they could acquire almost any other tech company if they really wanted to. I predict you’ll be very happy you added here even in the short term. Thanks for the update!

    • Haha me too, Ryan. I keep putting it off and see that price climbing month after month. I first got into it around $95 and now that seems like a good move. Sector-wise, the tech companies hold so much cash, they are in a class of their own. I wish there was some more visibility or clear indication on what Apple is going to do with the cash overseas, but for now, things are ok.

      cheers
      R2R

  11. Great buy! I hold AAPL in another portfolio as a covered call. I’ll need to look at the possibility of a special dividend and protect my shares in case that happens!

  12. JC says:

    Definitely a safer investment in the tech space. I personally don’t understand the huge draw for their products because you can get comparable ones for much cheaper but I’m not about to argue that people continue to flock to Apple for a variety of electronics. Although I have to admit I haven’t really played around too much with their products except an iPad. The fact that it’s also a quasi status symbol keeps the customers coming back. Huge cash hoard and loyal customers that have no issues paying up for quality products again and again = a great opportunity. It definitely looks relatively cheap all things considered. I own some AAPL shares, albeit not much, in my Loyal3 account and I guess it’s about time to look at AAPL for a potential larger position.

    • JC,
      I think you have already identified the draw. Its a quality product that works and a luxury item. For a lot of folks, its a bit of a status symbol – so, thats fine by me…keep on buying those Apple products 🙂 Ive owned a first generation iPad for a few years now and wasnt crazy about it and it felt more like a toy than a good utility tool to have….but last year we bought a mac and absolutely love it. My wife also switched from BB to iPhone and I see why its such a great product. I am still on an Android but thinking of switching to iPhone later this year.
      The company sure has a war chest of a cash position – hoping to score some of that in the returns over the years.

      R2R

  13. M says:

    probably the safest tech stock you can buy… although I’m not personally a fan of their products, having been disastrously let down by 3 out of 4 Apple machine I’ve owned!

    • I used to be in that boat a few years ago…and hated the fact that Apple controlled everything and didnt allow you to customize things…but Ive come around since it just works. The tightly coupled hardware and software works well and the control is important for them to put out quality products. Agreed that its one of the safest tech stocks to own.

      Best
      R2R

  14. Great buy, R2R! Awesome to have you as a fellow shareholder. Apple is the largest portion of my portfolio. I’m excited to see what the next dividend increase is. Companies like Apple show that you can invest in solely a growth stock for many years before it starts paying a dividend. I’m wondering if the same thing will happen with BRK, currently the only other stock I own that doesn’t pay a dividend.

  15. I know AAPL has been a dividend blogger favorite and by most measures is an awesome company with tons of cash and a sustainable dividend however I’m not fond of any tech company in my long term portfolio. I can respect your buy but AAPL just doesn’t excite me as much as a CAT, DE or MMM buy. I like the boring companies. Thanks for sharing.

    • I hear you, DivHut. Things change so fast in the tech industry – its hard for long track records. Besides, I work in the tech industry, so having a smaller position exposure in my investments might not be such a bad idea. Of the stocks you mentioned, I would love to get my hands on MMM.

      Thanks for stopping by
      R2R

  16. R2R…

    Congratulations on the buy. I actually think buying stick in this company is a no-brainer. But it and put it away. It’s going to $200 per share.

    Dennis McCain.

  17. Truly a great company. I have been always thinking that the company is overvalued since 2010 but guess what? Haha It has been doing amazingly well year after year.

    Congrats,

    BSR

    • Its surprising to see Apple trading at a discount. Granted that some of the metrics I used are short term since the company hasnt paid dividends for years, but still overall, I think its undervalued. Looking forward to collecting the dividends and ride the growth.

      Thanks for stopping by
      R2R

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