Apple Inc. (AAPL), And When Pessimism Gets Out of Control

Another possibility is for Apple to significantly raise the dividend. Right now the annual dividend per share is $10.60, or a total payment of about $10 billion. If this were tripled it would put the dividend yield at about 8% and Apple would still be adding to the cash pile each year even after this enormous dividend.

Is Apple cheap?

It’s reasonable to think that Apple Inc. (NASDAQ:AAPL)’s profitability will decline, but from the market reaction you’d think we were talking about an unprofitable company. The giant cash pile and the enormous cash flow even if profitability drops allows Apple to greatly boost the per-share numbers through buybacks or greatly increase the dividend. The company clearly has nothing else to do with its cash, so why not? Apple could easily offset a decline in profit with share buybacks — buying back 10% of the company today only costs about $37 billion.

If Apple can grow profits at all then the current stock price is downright insane. The market is pricing in a prolonged and permanent decline, and this may be a case of a “negative bubble” where people sell simply because the price has been going down. The market for mobile devices is still growing fast, and even if Apple’s market share declines total volume can still increase. Pessimism is the friend of the long-term investor, and this may be a great time to buy shares of Apple Inc. (NASDAQ:AAPL).

The article Apple: When Pessimism Gets Out of Control originally appeared on Fool.com and is written by Timothy Green.

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