With the stock price of Apple Inc. (NASDAQ:AAPL) down 25% over the past year (see chart below) shareholders are probably wondering what the future holds? Weighing the pros and cons will help answer the question.
Balance sheet – Apple’s legendary balance sheet sports a cash and investments balance of $137 billion, as of the most recent quarter, with no long-term debt. Its cash balance represents 108% of its stockholders’ equity, exceeding software giant Microsoft Corporation (NASDAQ:MSFT)’s and search-tech conglomerate Google Inc (NASDAQ:GOOG)’s cash to stockholders’ equity ratios of 94% and 77%, respectively.
Growth – Growth for Apple products continue especially on the Pacific Rim. Sales in Apple’s greater China segment grew 67% in its most recent quarter. Its iPhone and iPad sales grew 28% and 22%, respectively. As computing consumption continues to shift away from traditional PCs, the demand for Apple’s iPad and iPhone will continue.
Dividend capability – Apple shows great prudence, much to the chagrin of the investing public, in dividend payment. In the most recent quarter, Apple paid out $2.5 billion in dividends or 12% of its free cash flow. Members of the financial community, such as David Einhorn, manager of Greenlight Capital Re, Ltd. (NASDAQ:GLRE), feel that Apple should pay out some of its $145 per share in cash as a dividend.
Dividend growth – Apple hinted at the prospect of a future dividend hike or paying out a special dividend and it can certainly afford to do so. Bloomberg surveyed analysts who believe that Apple will boost its dividend maybe as early as today, the one-year anniversary of the dividend reinstatement. Apple shows a heavy desire for investing in research. Its research and development expense increased 33% YOY last quarter to $1 billion.
Product pipeline – With the death of Steve Jobs the investment community at large worries about future product innovation. The $64 billion question: Can Apple overcome market saturation and invent new products to capture consumer imagination? Only the future can tell.