A Recipe for Apple(s)
Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I remember reading Internet rumblings of Apple's (NASDAQ: AAPL) need for a stock split back in the fall of 2012. I’m sure its been brought up before, but I think the time has come for CEO Tim Cook to truly consider it for a number of reasons. The time has come for Apple to enter a new stage in its life cycle and increase its dividend. Funny, just when I was thinking that I opened my latest Barron’s (January 28, 2013) and read Andrew Bary’s article, Rx for Apple: The 4% solution (page 21). In a nutshell he contends that as Apple is no longer considered the high growth company it once was, the time has come for them to stop hoarding cash and grow up! I then moved on to page 28 of the same issue to read Tiernan Ray’s piece, indicating that Apple’s glory days are not over.
I began thinking about the fate of Apple when the shares dropped down to $500 a few weeks back. Ironically, the same week that I bought a Samsung TV and was truly impressed with the quality. I am a true Apple groupie – I started with an iPod, got an iPhone, then an iPad; I am writing this on my MAC. I love the produces, but before this I loved Dell (still kind of do) and PALM.
I believe Apple is at a cross-road of sorts. I think the groupies will continue to salivate over the latest mini-iPad or maxi iPhone, but the company is not the go-go growth company it once was. Maybe part of it is like the Facebook (NASDAQ: FB) situation ; the boomers have moved in and the millennials are leaving due to lack of coolness? So just like Madonna has figured out, Apple stock needs to reinvent itself.
Management needs to go back to the old-fashioned and really not-so-shameful idea of enhancing shareholder value. The high price of Apple shares makes it a difficult stock for investors like me, who like to use puts and calls in a variety of different ways to manage risk, but also to generate income. Even with a share price south of $500, a round lot would still cost close to $50,000 – and that’s only one contract!
Appleneeds to shift its shares to a desirable trading range and increase the dividend. This would take advantage of the rather simplistic anomaly of split shares most always offering investors abnormal returns – simply because demand increases. We all know what happens when demand increase – prices go up! An increased dividend would also attract investors who like dividends. Say what you like about capital gains being better, dividend-paying stocks will attract a different clientele.
So, Mr. Cook – listen to this investing boomer! Take advantage of the public’s fascination with stock splits and pay out a little of that cash. With a current P/E of a bit over 10, we are talking value territory. Not to mention the fact that the S&P 500 and possibly the DJIA may send out invitations to a stock like Apple at say $50 a share that would not even be a consideration at $500!
Helen K. Simon, CFP®
* I am long individual shares of AAPL and some holdings in mutual fund shares I own. My last purchase was executed on January 24, 2013.