Apple
- Market value: $3.08 trillion
- Dividend yield: 0.5%
Apple (AAPL, $195.60) is the $3 trillion maker of iPhone smartphones, Mac computers, iPads and numerous other products and services.
iPhones still represent over half of the company’s sales, but recently services, which includes the App Store, have started to increase as well. For example, in its latest quarter ending April 1, Apple’s services revenue came in at $20.9 billion, or 22% of its $94.8 billion in sales. That is up from 20% a year ago and 18.9% two years ago.
So, this massive tech products company is slowly shedding its overreliance on the iPhone, whose models are all very highly priced. While this will take time, the market so far approves of this plan.
And why not? The company is generating massive amounts of free cash flow (FCF), which is the money left over after a company covers expenses to run, maintain and expand the business. Last quarter, Apple said it generated strong operating cash flow of $28.6 billion, while returning over $23 billion to shareholders.
Apple pays a small dividend, which it recently raised by 4% to 96 cents annually. That gives the stock a low 0.5% dividend yield. However, this cost the company just $3.7 billion, or 13% of its operating flow.
The rest of the $23 billion “returned” to shareholders was through stock buybacks. In fact, Apple raised the amount it says it will spend this year on share repurchases to $90 billion. That represents over 3.3% of its total market value.
This will benefit long-term shareholders in Apple stock. First, it will raise AAPL’s earnings per share over time through having a lower number of shares outstanding for the income it produces.
But in addition, the dividend per share can rise faster than it would otherwise since the dividend payments will be spread over fewer number of shares outstanding. And a third effect will be the soaking up of shares traded in the market – effectively acting as a buying source in the market, pushing the blue chip stock higher.
Keep in mind that APPL stock is not overly cheap at the moment, at28.7 times forward earnings – above its five-year average of 23.7, according to Morningstar. However, it is about below the S&P 500’s average, as mentioned earlier.
Nevertheless, Apple remains one of the best long-term investment stocks due to its consistent and powerful cash flow, dividends and buybacks.
