Is Apple a 6% Dividend Stock?

In the following video, Motley Fool senior technology analyst Eric Bleeker discusses Apple (NASDAQ: AAPL  ) . In a recent Morgan Stanley research report, the firm outlined scenarios under which a cheaper iPhone could affect the company. Morgan Stanley proposed that Apple selling a lower-priced iPhone with 40% gross margin and one-third cannibalization would be an incremental opportunity for the company. As Eric notes, such a gross margin would be lower than current iPhones -- as expected -- but would be higher than the overall company total last quarter. The most attractive market for a cheaper iPhone could be markets like India, which is set to surpass China's growth in coming years and where lower-cost Samsung phones now prove more popular.

However, Eric says the most interesting part of Morgan Stanley research was that Apple should be paying out 67% of its free cash flow; that's equivalent to the tech sector average in the S&P 500. If Apple paid out 67% of its cash flow, that'd be a whopping 6% dividend yield!

There aren't many comparables for that level of payout. Cisco (NASDAQ: CSCO  ) has targeted paying out 50% of its cash flow and has been applauded for its recent dividend increases, which have it yielding 2.7%. Likewise, while Microsoft (NASDAQ: MSFT  ) has been aggressively buying back its shares for over a decade and yields 3.3%, it paid out just 44% of its free cash flow last year.

At 67% of its free cash flow paid out, Apple would incur additional taxes for overseas earnings if it doesn't take on debt, a move it's loathe to do. As Eric notes, sometimes you have to learn to walk before you run, and investors are putting extremely high expectations on Apple to pay dividends or buyback shares. In the end, Eric recommends a more moderate course of accelerated buybacks now and paying out almost all United States cash flow as dividends, a move which could put Apple's yield closer to 4% -- well above Cisco or Microsoft. 

To see Eric's full thoughts on Apple's dividend and why the company should listen to Warren Buffett's advice today, watch the video below. 

Scared by Apple's plunge? We have expert advice for you.
While investors debate what Apple should do with all its cash, the bottom line is that the company still has massive opportunities ahead. We've outlined them right here in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here.


Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2013, at 10:54 AM, dwilh51183 wrote:

    I AM BUYING AAPL. THEY WILL RALLY AGAIN. THE TIME TO BUY IS WHEN EVERYONE IS SELLING AND THE TIME TO SELL AND ROTATE OUT OF GOOG AND INTO AAPL IS NOW. JOHN TEMPLETON AND PETER LYNCH...USED THIS PHILOSOPHY AND WERE THE GREATEST INVESTORS EVER

    aapl will give cash back to investors. the dividend will get a nice boost soon

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2293113, ~/Articles/ArticleHandler.aspx, 12/28/2014 3:03:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement