Company Description: Apple Inc. is a prominent provider of hardware including iPhone smartphones, iPad tablets, Mac computers, wearables and iPod digital media players.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
AAPL is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 28.6% premium to its calculated fair value of $109.66. AAPL did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
AAPL earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. AAPL earned a Star for having an acceptable score in at least two of the four Key Metrics measured.
Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2007-2010, 2008-2011, 2009-2012, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 2012 and has increased its dividend payments for 6 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $1,907 is below the $2,900 target I look for in a stock that has increased dividends as long as AAPL has. If AAPL grows its dividend at 15.0% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 2.71%. AAPL earned a check for the Key Metric 'Years to >MMA' since its 4 years is less than the 5 year target.
Peers: The company's peer group includes: Microsoft Corporation (MSFT) with a 2.4% yield, Oracle Corp. (ORCL) with a 1.7% yield and Alphabet Inc. (GOOG) with a 0.0% yield.
Conclusion: AAPL did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks AAPL as a 2-Star Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $117.90 before AAPL's NPV MMA Differential increased to the $2,900 minimum that I look for in a stock with 6 years of consecutive dividend increases. At that price the stock would yield 1.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,900 NPV MMA Differential, the calculated rate is 16.6%. This dividend growth rate is higher than the 15.0% used in this analysis, thus providing no margin of safety. AAPL has a risk rating of 2.00 which classifies it as a Medium risk stock.
AAPL is a premium brand with high demand. It has a strong product pipeline with the opportunity to gain share in many end markets. With a low free cash flow of 24%, low debt to total capital of 40% and large cash holdings, AAPL in well positioned to grow its dividend for years to come. AAPL short dividend growth history keeps it out of my Dividend Growth Portfolio; however its dividend growth rate make it well suited for my High Dividend Growth Portfolio. The stock is a buy below its calculated fair value price of $109.66. As such, I will not likely to add to my position in the stock in the near future.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in AAPL (12.4% of my High Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
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Tags: AAPL, MSFT, ORCL, GOOG,