Is it time to invest in Apple for the dividend instead of projected growth? It has been about fifteen years since Apple last paid a dividend. Now the new CEO, Tim Cook, says that Apple will be paying a quarterly dividend and will be buying back shares. According to Apple the combined dividends and stock purchases will amount to $45 Billion over the next three years. The dividend part of this program will be around $10 Billion a year. Apple has had a spectacular rise from near oblivion in the mid 1990’s. It is truly a household name and it ranks in the top companies worldwide when measured by market capitalization. Part of company value is the nearly $100 Billion or so in cash and equities that it holds. Under former CEO Steve Jobs, Apple made great products and profited handsomely. Now the question for investors might be whether or not Apple is about to go the way of another large computer and electronics, Microsoft. Will Apple level off, continue to make lots of money and pay out handsome dividends? Will it seek to raise stock price by buying back stocks as its ability to produce stock gains dwindles? Is it time to invest in Apple for the dividend instead of for the growth as Apple joins the ranks of dividend stocks?
At lot is made about the fact that Steve Jobs in gone. Those who choose to invest in Apple for the dividend may well believe that the creative spark in Apple died with its cofounder. However, the co-founder and former CEO of Apple was not the only creative mind in the company. Apple will likely continue to produce great products that everyone wants to have. However, there is such a thing as market saturation. Apple makes great products. But, for much of the world, if not most of the world, they are too expensive. And, competition could get tougher for Apple if it gets into the world of mid-priced consumer electronics. The implication of this line of reasoning is that Apple may well continue to wow us with new and innovative products. It may well continue to create a healthy income stream. It may be able to pay healthy dividends and even raise its stock price a bit by repurchasing its stock. But the time to invest in Apple for the dividend, instead of for expected growth, might well have come. When investing in companies with cash, investors look for stability and cash flow more so than growth.
One issue for the immediate term is that Apple stock has gone up by half since Steve Jobs passed away. Part of this has likely had to do with successful product launches. Part may have had to do with previous concern about a transition after the expect death of the former CEO. With a successful transition investors may well be reassured that the company will not just fall apart. But, even with its upcoming dividend and stock buyback plan, Apple will hold over $50 Billion in cash and cash equivalents and will be adding on as it goes. It holds substantial offshore assets as well and will likely not repatriate these unless there is a change in the tax law. Whether you choose to invest in Apple for its product innovation or invest in Apple for the dividend depends on whether you think that the company will come up with a product or two than no one currently imagines, which everyone will want to have, and which lots of folks will be able to afford. Fundamental analysis will need to support positive investor sentiment if investors are going keep driving Apple stocks price upward.