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Apple: Now an "old man's" stock…

by , 29 April 2013

Apple's new returns to shareholder scheme is looking to give $30 billion of cash back (through dividends and buy backs) per year from the time of the first dividend payment this year through to December 2015. On a $400 billion market cap that's a yield of 7.5% per year! That's nice if you are an income focused investor like many older investors are... But for the Apple investors of old - this not what they signed up for.

The company hasn't paid a dividend for the last 17 years.
And the growth investors in the company certainly haven’t worried about this... They've received big capital growth that is until now though...
So why is Apple starting returning cash to shareholders now?
By returning huge piles of cash, is Apple now admitting defeat?
Previously Apple reinvested most of its cash into its business and achieving seriously high returns with the extreme innovation and dominance of its market. This saw its shares soar by 671% between 2009 and September 2012...
Now Apple's sitting on a massive cash pile of $135 billion...
This cash pile is actually bigger than the market capitalization of the biggest company on the JSE - British American Tobacco!
But last year the company announced its first intentions to restart its dividend program, and the latest earnings release has shown just how big this move is!
The return of cash could be seen as Apple admitting defeat that its innovative ability is now not the most effective use of capital.
What's worse for growth investors is that typically, once firms start major distributions like this, it's likely this will be a continuing theme.
What a slow and steady Apple means to investors
So if Apple is to keep maintaining these yields they will likely become more conservative and predictable with their earnings.  It'll spend less cash on innovation of new products and more on returns to shareholders... another no-no for growth investors.
Furthermore Apple no longer has the dominant position it did in the market in the last 4 years. New tablet and smart phone products now compete far more closely with the iPhone and iPad.
With no new product launches until later in the year Apple certainly has lost a lot of the investment buzz it's had in recent times.
Investors can expect a far slower and steady performance going forward.

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So, what should you do with Apple now?
Having dropped by some 43% since September 2012 everyone is talking about this stock.
From an investment point the company is still going to generate large amounts of cash as its huge and loyal customer base just keeps coming back for more. There is still a strong investment case for the company.
But if you are a growth orientated investor seeking the explosive growth returns of the last three years then this is not the place for you.
Companies like Samsung who are now doing great things with their tablets and smartphones taking market share away from Apple or the chip suppliers to these tech companies (Media Tek in Taiwan or ARM Holdings in London are two examples) are areas to consider.
On the other hand if you are a more "old school" investor, then on a PE of 9 and a huge yield of returns to shareholders then Apple is now something you should start looking at.

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Apple: Now an "old man's" stock…
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