Monday, March 26, 2012

Should dividend investors care about Apple’s Dividend?

Over the past week Apple Computer (AAPL) announced that it will pay dividends for the first time since 1996. Investors will receive $2.65/quarterly distribution starting in the third quarter of 2012. This is positive news for shareholders, as the company was hoarding almost $100 billion in cash on its balance sheet. Otherwise, this stash would have been spent on acquisitions, which might not have benefitted the bottom line by much. After all, the company has been able to go from $6 billion to $108 billion in revenues in a decade mostly as a result of innovation and offering unique products to consumers.

As a dividend growth investor, I do require at least ten years of consecutive dividend increases, before I initiate a position in a company. This is to protect me from investing in companies which have been able to boost distributions based on short-term economic or business events. After all, the Motorla RAZR was once the “cool” phone to have in the mid 2000’s, and the Sony Walkman was the main game in town in the 1980’s for listening to music. While I strongly doubt Apple will be able to increase revenues 20 times over the next decade, if it maintains innovating and delivering to its loyal following of consumers, it should do well.

Other companies in the dividend news include:

Raytheon Company (RTN) , together with its subsidiaries, provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as a range of mission support services in the United States and internationally. The company raised its quarterly distributions by 16.30% to 50 cents/share. Raytheon has raised dividends for 8 years in a row. Yield: 3.90%

W. P. Carey & Co. LLC (WPC), together with its subsidiaries, provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. The company raised its quarterly distributions to 56.50 cents/share. W. P. Carey & Co. LLC is a dividend achiever has raised dividends for 15 years in a row. The company is planning on converting to a REIT later in 2012, which would lead to a higher annual distribution for shareholders coupled with simplified tax reporting. Yield: 4.90%

Full Disclosure: None

Relevant Articles:

- Dividend Achievers Offer Income Growth and Capital Appreciation
- Dividend Achievers Additions for 2012
- Has the time for Tech Dividends arrived?
- The ten year dividend growth requirement

4 comments:

  1. I can't believe that apple computer traded at only 5 dollars a share in 1998 today the shares trade over 500 dollars talk about a stock rally.

    ReplyDelete
  2. Apple has been very disciplined about the acquisitions over a long time period. The purchases made have been very strategic to improve their products and have been small. They have not gone out and plunked down a big wad of cash on a dumb idea like microsoft and Google. Therefore, stating that they would have spent the 100 billion on acquisitions appears out of place. I agree most companies would do so and as a shareholder I like the dividend I just think you overstated your point

    ReplyDelete
  3. I expect Apple to continue to do well for the medium term, but after that, it's impossible to predict. As you point out, tech trends can come and go, and Apple could be the next Sony.

    It's also worth pointing out that Apple's dividend won't reduce the cash hoard, since the dividend payout is considerably less than free cash flow that's coming in, so it just slows down their cash accumulation rather than reduces their current cash position. Still, it's almost certainly better in the hands of shareholders than management.

    ReplyDelete
  4. I think Apple products are quite sticky...They have a pretty nifty eco-system. I am sort of inclined to start a small position with them on the basis of dividend.

    Now that I'm writing this, I guess the most prudent thing would be to wait until the next raise, April/May 2013 or so. If they raise the dividend aggressively, 20% or so, I guess I'd buy that day. If they raise 8-10%, I would see that they don't really care about rewarding the shareholders, just a token dividend for the dividend mandated mutual funds etc.

    But simply put, they could grow the dividend powerfully if they are so inclined, with their products, popularity, cash flow etc. Who knows.

    I guess waiting to see how much they raise it next year would be a pretty good indication, for those too impatient to wait a decade.

    Thanks as usual for your continued output.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts