Apple (Nasdaq: AAPL) may soon become the best "high-yield" stock in America...
The yield I'm talking about is something different. While this yield does take Apple's dividends into account, it doesn't stop there. It also considers other ways Apple is returning money to shareholders by buying back stock and paying down debt.
As regular readers might have guessed, I'm referring to Apple's Total Yield.
Regular readers of Dividend Opportunities are already familiar with concept of Total Yield. For those who aren't, I'll let Nathan Slaughter, the Chief Investment Strategist behind StreetAuthority's premium Total Yield advisory, explain:
You see, company CEOs can return wealth to you as a shareholder in three distinct ways: They can pay dividends, they can increase the value of outstanding shares by buying back their own stock and they can reduce their corporate debt.
While most investors approach investing with a myopic focus on dividends, Total Yield finds and recommends stocks that use all three strategies in combination to maximize shareholder wealth. Investing with dividends in mind is a great strategy, but the combination of all three considerations is much better.
The data agree. According to Nathan's research, his Total Yield strategy would have outperformed a dividend-only strategy by a wide margin over the last three decades. What's more, Nathan's analysis also found that the top 25% of Total Yield stocks returned on average of 15% between 1982 and 2011 -- trumping the S&P's performance over the same period.
So now that you know what Total Yield is, and why it's so valuable, let's take a look at Apple...
Historically, Apple hasn't been a very good Total Yield candidate. Up until 2012, the iPhone maker didn't pay a penny in dividends or allocate a dollar of capital to share buybacks. For most of Apple's existence, the company's management was simply more concerned with reinvesting its extra cash for growth.
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But fortunately for us, that pattern is changing... and quickly.
Over the past few years, Apple's management has taken a very aggressive stance on returning wealth to shareholders. In 2012, the company paid its first dividend of $2.65 a share and initiated a $10 billion share buyback program.
Apple has gone "all in" on these shareholder-friendly policies ever since...
In 2013, the company added another $50 billion to its buyback program and boosted its dividend 15%. Then just this month, the iPhone maker said it would raise its dividend another 8% and add $30 billion to its buyback program.
|Apple is currently the largest company in the world by market cap, and analysts don't think Apple's earnings growth will slow down anytime soon either.|
Critics of the programs have said Apple's changing preferences toward buybacks and dividends are an indication the company is running out of ideas. Short of another miraculous invention like the iPhone or iPad, these critics argue that moves like these are the only way Apple can now make shareholders happy.
We couldn't disagree more.
In fact, recent patent applications show Apple is far from slowing down when it comes to innovation. One such patent shows how electronic devices such as the iPhone, iPad or even a wristwatch could be used to detect ambient conditions such as temperature, pressure, humidity and sound.
Apple has also been hiring experts from the health and medical sensor fields. It is said that the company is working to make the health-tracking experience more accessible and user-friendly by allowing users to seamlessly track biometric functions like glucose levels, heart rate and blood oxygen saturation.
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Then there's the company's recent joint venture with GT Advanced Technologies. Apple has recently agreed to use the company's premier product, sapphire glass, in all its future devices. Sapphire glass is said to be highly transparent, much stronger than normal glass, and one of the most scratch-resistant materials in the world, potentially making it a great addition to Apple's new products.
I could go on and on about the R&D that Apple is investing in, but my point is that it's still a cutting-edge technology company capable of transforming industries.
But even if every single one of these initiatives fell flat on its face (which is highly unlikely given Apple's track record), the company is still far from being a tech dinosaur.
In fact, many could argue that Apple is still very much a growth stock. The company showed this in its most recent earnings report:
As you can see, in its most recent fiscal quarter, not only did the company beat estimates in every major category -- revenue, EPS and gross margin are the primary numbers analysts follow for Apple -- it also boosted revenue 5% and EPS 15% from the same quarter a year ago. That's a pretty amazing feat, considering Apple is currently the largest company in the world by market cap.
Analysts don't think Apple's earnings growth will slow down any time soon either. Based on current estimates, Wall Street expects Apple's earnings will grow at an average rate of 15% a year over the next five years.
With growth projections like that, I highly doubt Apple's management believes it needs to rely on any sort of gimmickry to retain investors.
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What's far more likely is that after over a decade of unprecedented growth, Apple has finally realized that it's time to start returning the massive cash hoard it's collected over the years back to shareholders.
That's great news for income investors... especially those using a Total Yield strategy.
That's because right now Apple currently has a cash hoard totaling over $150 billion. To put that in perspective, if you were to add up all the money currently sitting in corporate bank accounts (excluding financial companies), it would come out to about $1.5 trillion. That means Apple currently possesses roughly 10% of corporate America's cash.
Even if Apple doesn't earn another penny in profits, the sheer size of its coffers would provide plenty of ammunition for future dividend hikes and additional share buybacks. And with management's newfound preference for shareholder-friendly policies, it's not out of the question to think they'll soon be putting more of that cash to work.
If that's the case, then Apple could soon become one of the best Total Yield stocks in America.