Is 4% the New $1000 for Apple?

Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It was not that long ago that Apple (NASDAQ: AAPL) was being touted as a $1000.00 stock. Now, trading at around $450.00 a share after a 52-week high of over $700.00, recent articles have called for Apple to increase its dividend yield to 4% in order to be more attractive to investors.

Apple certainly has enough resources to raise its dividend from 2.34% to well over 4% without harming its cash flow.  Like Intel (NASDAQ: INTC) and Microsoft (NASDAQ: MSFT), other tech giants with robust dividend yields, Apple is very profitable with high margins and a low dividend payout ratio.  But the dividend, a recent re-introduction after a long absence, was meant to be the dessert, not the main course in the menu of offerings for investors to select from in choosing Apple as a buy.

As with anything in life, Apple's greatest asset, the iPhone, is also its greatest weakness.  Much of the success for Apple as a stock in its surge to over $700 a share was due to the sales and margins of the iPhone.  But the competition is much stronger now in the smartphone sector, which is harming the stock price of Apple.

Samsung, working with Google, the search engine behemoth, now sells the most smartphones in the world.  The Galaxy III of Samsung supplanted the iPhone as the world's top selling smart phone.  Nokia, using the Windows Operating System from Microsoft, has rebounded due to Lumia smart phone sales.  Blackberry, formerly Research-in-Motion, has so staked its survival on the sales of the Blackberry Z10 smart phone that it changed the company name!

What was at one time an overwhelming profit margin for Apple is now beneath that of Microsoft's and in the range of that for Google and Intel.  The profit margin for Apple has fallen over the last year as it has been strong for Microsoft for the same time segment.  It is also much the same story for Apple's diluted quarterly earnings-per-share on a year-over-year basis.  

With the earnings-per-share and profit margin falling along with the stock price, Apple pretty much becomes an income stock for those looking for a positive return.  Down more than 25% for the last six months, a positive return has not been coming from the share price for quite some time.  The company is also cutting back on orders from suppliers, a certain negative tell for the future.  Apple is also trading well below its 20-day, 50-day, and 200-day moving averages, which is a bearish indicator that the share price might not be rising anytime soon, either.

As an income stock, Apple is very attractive.  At 2.34%, the current yield is higher than the Standard & Poor's 500 average of around 2%.  With a low dividend payout ratio of just 11.91%, Apple can easily afford to raise its dividend yield without irresponsibly impairing its cash flow. As a comparison, Intel has a 4.30% dividend yield from a payout ratio of 45%.  The yield for Microsoft is 3.29% with a dividend payout ratio of 46.66%. Apple could double its dividend and still have a payout ratio less than half that of either Microsoft or Intel.  Nokia just ended its cash dividend after more than twenty years paying it.  Google is old school and still does not pay a cash dividend.

For long term income investors, Apple has a great deal of appeal, even if it never comes close to $1000.00 a share.


jonathanyates13 has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and Intel. The Motley Fool owns shares of Apple, Google, Intel, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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