Why Apple Inc. (AAPL) Is My Largest Holding

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With Apple Inc. (NASDAQ:AAPL) pessimism near an all-time high and it’s stock trading irrationally low relative to its fundamental earning power, I’m betting big on Apple. Here’s why.

Apple is a cash cow
The company’s dividend yield may not be meaningfully large today, at 2.7%, but I can say with near certainty that the Cupertino-based tech giant will continue to boost its dividend for years to come. Currently, the company is paying out just 27% of its annual earnings in dividends. This leaves quite a bit of room for the company to boost its dividend in the future.

Apple Inc. (NASDAQ:AAPL)Then there’s Apple Inc. (NASDAQ:AAPL)’s massive cash hoard. Once a topic of criticism, the cash is now a fully loaded weapon. Enabled by the world’s largest share repurchase program, the company is buying back shares in droves. In fact, Apple guru Horace Deidu explained on his blog, Asymco, that the company reduced its share count by a whopping 3.5% since the end of its first quarter (11 million of those shares are not yet reflected in the company’s share count). In a roundabout way, that’s basically a non-taxable special dividend yielding investors about a 3.5% return.

As Apple Inc. (NASDAQ:AAPL) continues to pull the trigger on its $60 billion share repurchase program, investors should expect to continue to watch their share of the company rise.

Fundamentally, Apple is a straight-up bargain
The company trades at 11 times earnings and about 10 times free cash flow. At valuations like this, Apple Inc. (NASDAQ:AAPL) is basically priced for zero growth going forward. Even if this is Apple’s fate, investors can cash in on a dividend that’s likely to grow for years to come.

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