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Time to invest in Apple?

I just heard on the news that Apple is going to stop sitting on its billions in cash and give shareholders a $2.50/share dividend... Will this make investors 'go crazy' (buying) and drive the price up even higher?

Mar 19, 2012 by Gordy from Portland, OR in  |  Flag
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4 votes

I would say that the dividend and buyback are nice, but if you weren't already an investor in the stock, they're certainly not the reason to all of a sudden start buying.

Comment   |  Flag   |  Mar 19, 2012 from Manhattan, NY

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3 votes
Ryan Level 19

The odds might favor some larger investors now adding Apple to their portfolios. By adding a dividend, the stock might now qualify for certain types of mutual funds that need to purchase stocks that pay dividends. The buyback is probably encouraging. Initially, my concern was that a dividend might be used to keep investors happy with slower growth projections but when coupled with a buyback program, I am a bit less skeptical. Keep in mind that Apple can also be rather volatile so unless individual stocks fit into your risk tolerance, don't fall prey to chasing returns.

Comment   |  Flag   |  Mar 19, 2012 from Gettysburg, PA

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Don Level 19

A couple of points to add to the above: First, the dividend is not a surprise and is largely priced into the stock. There could be some appreciation as it is added to dividend income mutual funds, but some of these have already added Apple in anticipation, so the effect will likely be modest. Second, if you own mutual funds and index funds, you probably already have 2-3% of your portfolio in Apple. You should carefully consider how much more you want to hold in this one stock. For the speculator who wants to get in ahead of any dividend announcement, you would need to consider Google. The pressure on them to start a dividend is sure to increase now that it is the world's largest company that doesn't pay one. This is by no means a recommendation!

Comment   |  Flag   |  Mar 19, 2012 from Middlebury, VT

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Jonathan Foster Level 16

Hi Gordy,

I don't usually comment on individual securities, but here is something for you to consider. For years, Apple was the darling of Large Cap Growth stock investors. Now that the company is maturing, and its prospects for "disruptive innovation" have dimmed in favor of incremental product improvement, it has may have lost its luster as a classic Growth stock. However, the company has huge cash in the bank, unparalleled brand name value, is incredibly profitable, pays a dividend, yet trades at a modest P/E ratio, especially when you back out the cash from its market value. What you may be left with is a classic Value stock.

Now comes the problem...it has to do with investor rotation. If, in fact, Apple is transitioning from a Large Cap Growth stock to a Large Cap Value stock, then the investor base needs to swap out. Dedicated Growth stock investors (EX: Growth mutual funds) will need to sell the stock and dedicated Value stock investors will need to buy in.

In order for you to have a successful investment, you need to buy more than a "good" company...it also needs to be a "good" stock! Timing is vey important. Apple has been a good company during its entire selloff from $705 to today's price of $442, but it hasn't been a good stock.

Good luck!

Jon Foster

Comment   |  Flag   |  Jun 09, 2013 from Santa Monica, CA

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While Apple is no longer a fantastic growth story, its low price/earnings ratio (under 10) may appeal to value investors. If Apple can continue to grow its user base, particularly in the Emerging Markets, it may be a good long term hold. However, with the China's growth prospects (a large driver of global growth) continually revised lower, the company may run into some short term headwinds. Financial engineering (increasing dividends and buybacks) can only go so far. Apple needs to continue to innovate in order to reemerge as a solid, long term investment.

Comment   |  Flag   |  Jul 23, 2013 from Cranford, NJ

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