1 Reason to Own Apple Stock

The same key driver behind Apple's stock 54% run-up in the past year should continue to boost shareholder value for years to come.

Jul 26, 2014 at 9:45AM

In the past four quarters, Apple's (NASDAQ:AAPL) year-over-year quarterly revenue growth rates have remained mostly the same, ranging between 6% and 4 %. But despite no ramp in Apple's top line growth, the stock has soared 54% during this same period. While a number of factors likely serve as drivers to the increasing optimism on the Street regarding Apple stock, one key factor is certainly Apple's share repurchase program. Indeed, even after the run-up in share price, Apple's heady cash flow that enables share repurchases and dividends is still a great reason to own the stock.

Apple Store China

The share repurchase program that may live on for a decade
It's incredibly difficult to predict anything in the stock market more than 10 years out, but looking out into the next decade, there's one thing regarding Apple that seems fairly clear: The tech-giant will likely continue to authorize meaningful share repurchases.

Currently, Apple has authorized a $130 billion capital return program. Apple has specifically purposed $90 billion of this amount for repurchasing shares. Fortunately, Apple has been incredibly aggressive in repurchasing shares, already spending $51 billion of the authorized amount for repurchases with six quarters remaining on the program. 

To add perspective of just how significant a $90 billion repurchase program is for Apple, consider that this amount is equal to 15.5% of Apple's total market capitalization today. A program this significant is bound to build shareholder value -- especially when shares are repurchased at good prices.

But how in the world is a program like this sustainable? Here's how: $48.1 billion in annual free cash flow. Apple's free cash flow is the good stuff that's left over after day-to-day operations are taken care of and capital expenditures are accounted for.

This is enough cash to meaningfully move the needle with share repurchases for the foreseeable future. While Apple's paying out about $12 billion of this free cash flow annually in dividends, this still leaves a whopping $36 billion in annual free cash flow. Best of all, there's no sign this cash flow is going to decline in the near future.

How Apple leverages earnings growth
To illustrate just how powerful repurchases can be, consider Apple's most recent quarter. Thanks to share repurchases, total share count was reduced by 7% from the year-ago quarter. This means Apple effectively boosted earnings per share, or EPS, by 7% by repurchasing shares alone. Add in Apple's net income growth, and the company's total year-over-year EPS growth was a sweet 19.6%.

In short, this chart sums up my favorite reason to own Apple stock.

AAPL Average Diluted Shares Outstanding (Quarterly) Chart

AAPL Average Diluted Shares Outstanding (Quarterly) data by YCharts

Even after the recent run-up in Apple's share price, a conservative price-to-earnings ratio doesn't fully appreciate the potential of Apple's lucrative free cash flow that looks poised to continue. Over the long haul, Apple is likely to continue to be able to both repurchase shares and increase its dividend.

Combine a likely favorable capital return program, for the foreseeable future with potential organic net income growth stemming from continued growth in iPhone sales and new product categories, and Apple is a solid bet for the long haul.

Risk-free for 30 days: The Motley Fool's flagship service
Tom and David Gardner founded The Motley Fool over 20 years ago with the goal of helping the world invest...better. Their flagship service, Stock Advisor, has helped thousands of investors take control of their financial lives and beat the market. Click here to sign up today.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers