Thursday, June 16, 2016

Apple Inc. (AAPL) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Apple Inc. (AAPL). Below are some highlights from the above linked analysis:

Company Description: Apple Inc. is a prominent provider of hardware including iPhone smartphones, iPad tablets, Mac computers, wearables and iPod digital media players.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

AAPL is trading at a discount to 1.) and 3.) above. When also considering the NPV MMA Differential, the stock is trading at a 9.8% discount to its calculated fair value of $109.62. AAPL earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

AAPL earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. AAPL earned a Star for having an acceptable score in at least two of the four Key Metrics measured.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

AAPL earned a Star in this section for its NPV MMA Diff. of the $4,469. This amount is in excess of the $3,000 target I look for in a stock that has increased dividends as long as AAPL has. The stock's current yield of 2.21% exceeds the 2.19% estimated 20-year average MMA rate.

Peers: The company's peer group includes: Microsoft Corporation (MSFT) with a 2.8% yield, Oracle Corp. (ORCL) with a 1.5% yield and Google Inc. (GOOG) with a 0.0% yield.

Conclusion: AAPL earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks AAPL as a 4-Star Strong stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $117.50 before AAPL's NPV MMA Differential decreased to the $3,000 minimum that I look for in a stock with 5 years of consecutive dividend increases. At that price the stock would yield 1.9%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $3,000 NPV MMA Differential, the calculated rate is 13.5%. This dividend growth rate is lower than the 15.0% used in this analysis, thus providing a a margin of safety. AAPL has a risk rating of 1.50 which classifies it as a Low risk stock.

AAPL is a premium brand with high demand. It has a strong product pipeline with the opportunity to gain share in many end markets. With a low free cash flow of 22%, very low debt to total capital of 38% and large cash holdings, AAPL in well positioned to grow its dividend for years to come. AAPL short dividend growth history keeps it out of my Dividend Growth Portfolio; however its dividend growth rate make it well suited for my High Dividend Growth Portfolio. The stock is a buy below its calculated fair value price of $109.62. As such, I will likely initiate a position in the stock as market in the near future.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in AAPL (0.0% of my Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.

Related Articles:
- Procter & Gamble (PG) Dividend Stock Analysis
- Microsoft Corporation (MSFT) Dividend Stock Analysis
- Procter & Gamble (PG) Dividend Stock Analysis
- The Clorox Company (CLX) Dividend Stock Analysis
- Target Corporation (TGT) Dividend Stock Analysis
- More Stock Analysis


Tags: AAPL, MSFT, ORCL, GOOG,

1 comment:

  1. Most of Apple's free cash is offshore to avoid USA corporate taxes and it has to continually borrow (increase debt) to pay the USA dividend. Dividend growth should slow considerably IMHO.

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