What’s more, the company has repurchased over 5% a year on average of its shares each year from 2012 through 2015.
Apple currently has a dividend yield of 2.4%. The company’s dividend yield combined with its share repurchases gives it a shareholder yield of around 7.5% – which is extremely high. There’s no doubt Apple is a shareholder friendly company.
Apple’s ability to generate cash – $50 billion in earnings over the last 12 months – makes it very clear the company has a strong brand based competitive advantage.
The company’s products and brand represents quality. Apple’s products are used and greatly improve the lives of 100’s of millions of people.
What isn’t clear about Apple is the sustainability of its competitive advantage.
Will we be using credit (American Express), eating Ketchup (Kraft-Heinz), and drinking beverages (Coca-Cola) in 10 years? With a very high degree of certainty, you can say yes to all of the above.
Will Apple still be the world’s dominant smart phone company in 10 years? What about 20 years? Will we even use smart phones in 20 years? The answer to those questions are much less certain.
That’s where the uncertainty in an Apple investment lies. It’s not whether or not the company is shareholder friendly and has a strong competitive advantage today (it most certainly does. It is about whether that competitive advantage is durable and sustainable.
Apple’s Valuation & Final Thoughts
One thing is clear about Apple stock. The market has priced in fears about the company’s future. Apple is currently trading for a price-to-earnings ratio of 10.5 and a forward price-to-earnings ratio of 10.3
The fears outlined in this article are just as applicable to Netflix, Inc. (NASDAQ:NFLX), Alphabet Inc (NASDAQ:GOOG), and Facebook Inc (NASDAQ:FB) as they are to Apple. The forward price-to-earnings ratios of those 3 businesses (all of which have strong competitive advantages today) are shown below:
– Google has a forward price-to-earnings ratio of 18.1
– Netflix has a forward price-to-earnings ratio of 84.9
– Facebook has a forward price-to-earnings ratio of 26.0
Apple Inc. (NASDAQ:AAPL) stock is heavily discounted today. There’s very little doubt the company’s brand based competitive advantage will be sustained over the next several years.
At a price-to-earnings ratio of 10.5, Apple makes an excellent value investment for investors with a medium (say 2 to 3 year) time frame. When investor sentiment around Apple changes (and it likely will at some point), those who purchased Apple at a price-to-earnings ratio of 10.5 should see large gains.
Is Apple a core position for the long-term dividend growth investors? Not in my analysis.
Does Apple offer above-average risk-adjusted return potential over the next several years? Absolutely.
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Disclosure: None
