Disappointed by Apple’s yield? Think Different

“By July of this year, Apple (AAPL) will officially be a dividend stock,” Geordy Wang writes for Seeking Alpha. “This development is no surprise for the market. Even though many of Apple’s most zealous fans have continued to hold out against the possibility of a dividend, even in the face of mounting evidence to the contrary, anyone who’s been paying attention has seen the signs coming a long time ago.”
“What may have actually taken investors off-guard is that Apple’s dividend is so conservative: at $2.65/share per quarter, that’s only a yield of 1.8%, well below consensus estimates of 2-3%,” Wang writes. “All in all, it was a rather anticlimactic announcement given the enormous amount of build up in the recent months, culminating in a two month run of over 40% in the stock price.”

“However, I would argue that such a small, conservative step is to be expected from Apple’s management. CEO Tim Cook has always been a patient man, and anyone who has heard him speak has witnessed the slow, methodical way that he thinks and communicates. Furthermore, it’s in Apple’s DNA to move slowly and carefully, and do things right instead of fast,” Wang writes. “Even though Apple’s effective payout ratio at its current distribution amount is relatively low, I fully expect that number to increase significantly in the years to come. A study of other dividend-paying technology titans will confirm an identical pattern, where they start off with a low payout ratio and continue to raise it in excess of earnings growth in the ensuing years.”

Wang writes, “Tim Cook is a very smart man who understands that cash that is not deployed is a depreciating asset that will eventually be consumed by inflation. 1.8% may not seem very high, but this is just the beginning. The best is yet to come.”

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