How to Multiply Apple's Dividend
Is Apple the Greatest Company in History?
Last Tuesday, Apple Computers announced quarterly earnings that fell short of expectations.
Many investors assume this miss is a one-time event. It's not.
This was the second time in the last four quarters that Apple missed expectations.
The stock was down $25 the next day. It was $74 lower than its all-time high from April at $644.
Two earnings misses in a year and a sharp drop from all-time highs... These are the signs of a company that's having trouble executing its business plan, one that might be losing its grip on its market.
At least they would be, if we were talking about any other company.
But this is Apple Computers.
If you do some research on the "fastest growing companies," you'll turn up names like computer company Compaq, which saw $111 million in its first year of existence (1982) and broke $1 billion in its second year...
Or eBay (Nasdaq: EBAY), whose revenue jumped from $250 million in 1999 to over $2 billion in 2003. (eBay currently does around $13 billion.)
But the best revenue growth stories in history pale in comparison to what Apple has accomplished...
Ten years ago, in 2002, Apple's 12-month revenue was $5.7 billion. In 2008, Apple did around $32 billion. This year, Apple is expected to rake in $157 billion in revenue.
So much for not executing that business plan...
Apple is firing on all cylinders.
It's All about the CASH (and the Growth)
As if growing revenues by $150 billion in 10 years isn't impressive enough, Apple has also put $110 billion in the bank in that time — $80 billion of which has come in just the last five years — and all this during some of the toughest years the U.S. economy has ever seen.
Apple could take its cash and buy both McDonald's and FedEx outright... It could buy Bank of America and Starbucks... Or it could become a media juggernaut and buy Disney and Viacom...
Apple could buy the entire U.S. auto industry and still have $20 billion in its bank account for a rainy day.
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It contains full details on why dividends are an amazing tool for growing your wealth.
But so far, the most significant use Apple has found for its cash is a shareholder dividend. The company said it would pay its first-ever dividend on August 16 to stockholders of record as of August 13, 2012.
As quarterly dividends go, the $2.65 per share that Apple will pay is pretty good.
But when you look at the percentage — 1.8% — Apple's dividend is modest...
GE pays 3.3%. Verizon pays 4.5%.
The problem is GE and Verizon aren't growing very fast. Verizon is expected to grow 10% a year for the next five years; GE's a little better at 12% growth.
Apple? Analysts say it will grow 22% a year for the next five years.
That, my friends, is unprecedented for a $550 billion company.
But what's even more amazing (to me, anyway) is Apple's valuation. If you could get someone to lend you $550 billion to buy Apple yourself, you could pay off the loan out of earnings in 11 years... and you'd have Apple's $110 billion in cash, free and clear.
So, What Does This Mean for Individual Investors?
One share of Apple stock costs $585.
Not many of us have enough cash to own a meaningful amount of a $585 stock. And I think it's safe to say a $550 billion loan to buy the company is out of the question.
Now, as co-editor (with Brian Hicks) of The Wealth Advisory, I'm a dividend guy.
When I own a stock, I'm part-owner of that company. And that means I'm entitled to a share of the company's earnings... I want to get paid.
So while I like the idea of being a part owner of the greatest company in history, Apple Computers, I have to be totally honest and tell you that getting paid $10.60 a year (Apple's dividend) on a share of stock that costs $585 doesn't satisfy me...
Especially since I've found a way you could spend that same $585 — and get $54 a year in dividends — and your investment is still secured by Apple Computers.
It's the same $585. The difference is $10.60 a year in dividends — or $54.
Personally, I like $54. It's a bigger number.
I'll be sharing this "i-Retirement" investment idea with Wealth Daily readers this Thursday.
Until next time,
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.