THE APPLE INVESTOR: Can Apple Avoid The Fate Characteristic Of Most Dividend Stocks?

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AAPL Up Slightly In A Down Market  
The market is off from early morning gains as home resales fall in February and inventories rise. Shares of AAPL are up just over the flatline, while the rest of the tech tape is choppy. Investors will be looking for the new iPad adoption (see below); iPhone penetration, especially in China and emerging markets; market share growth of the Mac business; the evolution of Apple TV; and platforms such as Siri, iAd, iBooks and Ping. Shares of Apple trade at 11.6x Enterprise Value / Trailing Twelve Months Free Cash Flow (including long-term marketable securities).What Analysts Are Saying About Apple’s Dividend And Buyback (CNNMoney)
The Street’s reaction:

  • Jefferies & Co: Peter Misek says the dividend amount is bigger than expected and the buyback was gravy. It will allow dividend investors to get involved. Rating: Buy. Price target: $699.
  • Sanford Bernstein: Toni Sacconaghi is disappointed in the size of the dividend (1.8% vs. an expectation among investors of 2-2.5% and S&P yield of 2.0%). Overall, it reflects a pretty vanilla return of cash program. Rating: Outperform. Price target: $710.
  • Goldman Sachs: Bill Shope says this was a major catalyst fulfilled, and with many more to come, the stock should continue to lift higher. Rating: CL-Buy. Price target $700.
  • Piper Jaffray: Gene Munster says despite paying around $10 billion in total dividends per year at the current rate, the company will still be adding net cash to their U.S. cash holdings. He believes the dividend achieves the main goal of expanding the share holder base. Rating: Overweight. Price target: $718.
  • Merrill Lynch: Scott Craig believes that the dividend and buyback allows Apple to preserve its domestic cash balance and remain flexible for growth opportunities. Rating: Buy. Price target: $610.
  • J.P. Morgan: Mark Moskowitz says that with Apple, a dividend is not a sign of the high-growth days being over. It reflects the major cash flow generation power that is attached to Apple’s high-growth operating model. Rating: Overweight. Price target: $625.
  • Morgan Stanley: Katy Huberty believes the dividend could boost long-term stock performance and expand the investor base. Price target: $720.
  • Barclays Capital: Ben Reitzes says that Apple has many opportunities ahead given their rapid organic growth rates in key markets, combined with international growth opportunities. The announcement holds promise for all types of investors; growth, value and income. Price target $730.
  • Deutsche Bank: Chris Whitmore views the timing of the dividend announcement as somewhat of a surprise and a distraction. Rating: Buy. Price target: $600.

Overall, very positive.

Apple’s Cash Hoard Will Continue To Grow (Business Insider)
Assuming ongoing growth and no huge acquisitions, Apple’s cash balance should continue to grow rapidly, even with the dividends and buyback. Why? Because Apple is generating a lot more cash each year than it plans to pay out. Assuming Apple continues to grow rapidly and maintain high profit margin, this annual cash flow should increase to $40 billion this year, $50 billion next year, and $60 billion the following year, for a total of about $150 billion over three years. If it pays out ~$45 billion in dividends and a buyback, its net cash should increase by ~$100 billion over the next three years. So in three years Apple’s cash balance could approach $200 billion, even with the dividend and buyback.

Can Apple Avoid The Fate Of Most Dividend Stocks? (BusinessWeek)
Dividends are often associated with companies that have matured past a rapid-growth phase and get more mileage from returning cash to shareholders than using it to generate innovative products, Microsoft is a perfect example. Apple CEO Tim Cook is betting that his company can keep cranking out best- selling gadgets even while paying a dividend, avoiding the fate of peers that return money to investors yet grow more slowly. He believes the company will continue to thrive by expanding abroad, adding new business users and adding new customers for its line of Mac computers. “We don’t see a ceiling” for the company’s growth prospects.

Apple Sells 3 Million iPads In Less Than 4 Days (Business Insider)
Apple decided to release iPad sales numbers after all. On Monday the company said it sold over 3 million iPads since it launched last Friday (less than 4 days). This is bigger than the biggest analyst estimate out there. While there’s no year-over-year comparison, for some context, it sold over 4 million iPhone 4Ss on opening weekend. Considering the iPhone is a much bigger product overall for Apple, this is a good sign for the new iPad.

Tablet Sales To ‘Measurably Exceed’ PCs (AppleInsider)
The launch of the new iPad shows sales of Apple’s tablet are ramping at an accelerated rate of 156% year-over-year, putting them in a position to become “measurably larger” than the PC market as a whole. Analyst Gene Munster with Piper Jaffray sees Apple retaining a majority share of the tablet market through at least the next three years. He estimates iPad sales will grow to 176 million units in calendar 2015, as the tablet market marches toward eclipsing PC sales. “We believe the unprecedented ramp of the iPad over the past year is evidence that the tablet market will be measurably larger than the PC market.”

Wi-Fi Preferred Tablets Could Be Another Reason For The iPad’s Lead (Electronista)
A new study from Chetan Sharma has pointed to a very strong bias towards Wi-Fi tablets in the U.S., which could explain Apple’s lead in the market. About 90% of American tablets were Wi-Fi models. A direct explanation wasn’t given for why Wi-Fi was the top choice, although price is likely the driving factor. The split would help explain the iPad’s continued lead despite a large number of Android tablets that theoretically had an early edge with 4G. Many Android tablets in the U.S. are either sold primarily or exclusively with a cellular connection, often at a large premium.

Apple Stock Returns Nearly 5,000% Since 2002 (Bloomberg)
Apple didn’t need the biggest price swings to post the best gain in the Standard & Poor’s 500 Index over the last decade. The company’s top return of 4,738% since 2002 is double the index’s next-highest gain after adjusting for volatility. Daily changes in Apple ranked 216th out of the 500 equities in the benchmark measure for U.S. equities. Apple trades at ~17x times trailing earnings which is 6.2% higher than the multiple for technology companies in the S&P 500 and 57% below the company’s 10- year average valuation of 40.

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