I never thought I would be writing about Apple in the context of dividends, but the death of the late, great Steve Jobs has changed this. He would not countenance Apple paying a dividend with memories of Apples $150 million bailout by Microsoft in 1997 still in the memory. Tim Cook though, has other ideas and Apple looks like a company that will be paying increasing dividends for many years to come.
Looking at the fundamentals, are Apple good value?
They are on a relatively undemanding Price Earnings ratio of 11.8x at a price of $589, with analysts pencilling in $50 of earnings. The share price has ranged from $702 to $363 over the past 12 months.
The dividend is forecast to be around $10-12, giving a yield of 1.7-2%. Not high, but what is the risk? Short term U.S. treasuries are yielding almost zero. Apple has around $100 billion in cash, although much of this is overseas and will be expensive to repatriate. However, it has initiated its dividend and backed it with a share repurchase program expected to amount to $45 billion over the next 3 years.
This is just Apple being ultra conservative and will not be enough for shareholders. In fiscal 2012, Apple generated $50 billion in cash, so if this continues and more likely, accelerates, there will be no impact on the cash mountain at all over a three year period. In fact, we can seriously expect it to double to $200 billion at the current rate of cash generation. With a market capitalisation of $555 billion, shareholders will demand greater returns and management will surely acknowledge that a cash to market cap ratio of 36% is plain inefficient. (Especially, given how much of that cash is sat in the aforementioned short term US treasuries yielding almost nothing.)
Has Apple gone ex-growth? Not exactly. Analysts are predicting 13% growth in EPS in the coming year, but they have been underestimating Apples power for many years and have consistently under-predicted. Apples EPS growth over the past 5 years is a staggering 36%, 68%, 67%, 82%, and last year 57%.
January will give us the first pointer for the coming fiscal year and it should not come as a surprise if they decide to return more to shareholders than is currently being predicted. With Dividend cover over 5 and the cash mountain growing, increased dividends remain underpinned for many years to come.
