IS: “Mirror, Mirror On The wall, Is Apple (AAPL, Financial) The Greatest Dividend Stock Of Them All?” Mirror: Weren’t you the person who wrote about being crazy to not own Apple?
IS: Yes, I did say so. I mean Apple is an amazing company, and I feel like it is priced ridiculously cheap. The company has been growing at an incredible rate for years now yet it continues to trade at P/E ratios that are comparable to Microsoft and others. Just look at these numbers:
Mirror: So doesn’t that answer your question? Why do you even need me here?
IS: You see, my analysis was completely based on tech stocks or on a more speculative portfolio, I did not really consider that Apple could be part of a dividend portfolio.
Mirror: Now that Tim Cook has confirmed that Apple will be paying a $2.65 quarterly dividend, doesn’t it become an obvious pick?
IS: Not exactly, you see my main dividend methodology is look for long term sustainable dividend stocks that are able to increase their dividends over time.
Mirror: How would Apple not qualify then?
IS: You see, I have absolutely no history that Apple will be able to sustain and increase its dividend payout over time. If the company waited so long to start paying out a dividend, there is certainly risk that the payout would not increase over time.
Mirror: First of all, in terms of Apple being able to keep its dividend payment. Surely you know that Apple has around $100B of cash reserves. Also, in each one of the past 9 quarters, Apple made well in excess of $2.65. In fact, in the past 4 quarters, Apple has earned nearly $9 of earnings per share on average, making its current payout ratio close to 30%.
IS: I have to say, I’m starting to run out of arguments
Mirror: I could actually go on much longer… Apple continues to increase sales. Last weekend was a new record for iPad sales and with the iPhone 5 launch expected this fall, Apple will likely continue to improve its numbers. As you’ve said yourself, it’s a no brainer even without considering the Apple TV due to launch next year. That alone could be a game changer.
IS: What about dividend increases? How could I possibly know what to expect?
Mirror: That is the only negative point that I can see right now in all honesty. We simply do not know. Given the incredible rise in revenues and profits, I do think that Apple will be increasing that payout, not only for shareholders but because it clearly seems to believe that holding $100B in cash is more than it needs.
IS: There doesn’t seem to be much downside either
Mirror: Exactly.. The current dividend yield would be slightly under 2%, a very reasonable start. At its current P/E, it seems like a bargain from almost any possible angle.
IS: Don’t you have at least 1 bad thing to say about Apple then?
Mirror: It’s almost too good to be true. And you know what people generally say about things that look too good to be true?
IS: Mirror, that doesn’t sound like a convincing argument for me to hold off
Mirror: It’s not. Apple will not be amongst the top dividend yields. But if you are looking for a long term source of income that could fit in a portfolio such as your Ultimate Sustainable Dividend Portfolio, you need to buy Apple (AAPL), it’s a no-brainer.
IS: Thanks, I just wanted to make sure I wasn’t crazy:)
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IS: Yes, I did say so. I mean Apple is an amazing company, and I feel like it is priced ridiculously cheap. The company has been growing at an incredible rate for years now yet it continues to trade at P/E ratios that are comparable to Microsoft and others. Just look at these numbers:
TickerNamePricePE RatioPE Next YearSales Growth AAPLApple Inc601.117.0612.1965.96
Mirror: So doesn’t that answer your question? Why do you even need me here?
IS: You see, my analysis was completely based on tech stocks or on a more speculative portfolio, I did not really consider that Apple could be part of a dividend portfolio.
Mirror: Now that Tim Cook has confirmed that Apple will be paying a $2.65 quarterly dividend, doesn’t it become an obvious pick?
IS: Not exactly, you see my main dividend methodology is look for long term sustainable dividend stocks that are able to increase their dividends over time.
Mirror: How would Apple not qualify then?
IS: You see, I have absolutely no history that Apple will be able to sustain and increase its dividend payout over time. If the company waited so long to start paying out a dividend, there is certainly risk that the payout would not increase over time.
Mirror: First of all, in terms of Apple being able to keep its dividend payment. Surely you know that Apple has around $100B of cash reserves. Also, in each one of the past 9 quarters, Apple made well in excess of $2.65. In fact, in the past 4 quarters, Apple has earned nearly $9 of earnings per share on average, making its current payout ratio close to 30%.
IS: I have to say, I’m starting to run out of arguments
Mirror: I could actually go on much longer… Apple continues to increase sales. Last weekend was a new record for iPad sales and with the iPhone 5 launch expected this fall, Apple will likely continue to improve its numbers. As you’ve said yourself, it’s a no brainer even without considering the Apple TV due to launch next year. That alone could be a game changer.
IS: What about dividend increases? How could I possibly know what to expect?
Mirror: That is the only negative point that I can see right now in all honesty. We simply do not know. Given the incredible rise in revenues and profits, I do think that Apple will be increasing that payout, not only for shareholders but because it clearly seems to believe that holding $100B in cash is more than it needs.
IS: There doesn’t seem to be much downside either
Mirror: Exactly.. The current dividend yield would be slightly under 2%, a very reasonable start. At its current P/E, it seems like a bargain from almost any possible angle.
IS: Don’t you have at least 1 bad thing to say about Apple then?
Mirror: It’s almost too good to be true. And you know what people generally say about things that look too good to be true?
IS: Mirror, that doesn’t sound like a convincing argument for me to hold off
Mirror: It’s not. Apple will not be amongst the top dividend yields. But if you are looking for a long term source of income that could fit in a portfolio such as your Ultimate Sustainable Dividend Portfolio, you need to buy Apple (AAPL), it’s a no-brainer.
IS: Thanks, I just wanted to make sure I wasn’t crazy:)
Also check out: (Free Trial)
