Apple (AAPL) Investors Should Be Careful What They Ask For; Dividend Could Be a Death Knell
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Barron's made a compelling argument over the weekend that Apple (Nasdaq: AAPL) could and should start paying a fat dividend in order to reward loyal shareholders and lure new investors of the value-variety.
This article is nothing new. Since Steve Jobs died in October, the clamoring for a dividend from Apple has been enormous. The company's $80+ billion cash hoard makes it an easy target.
While a dividend would appear to be great, investors should be cautious that such a move could also be a death knell for the stock.
The paying of a dividend could signal to the market that Apple is throwing in the towel on growth, transitioning from a hyper-growth story to a value stock.
While it could easily be argued that Apple is a value stock now, trading at a multiple of 11x FY12 EPS estimate, make no mistake - Apple is a growth stock and most investors that are in the stock are investing in growth.
A perfect example of a dividend being the death knell of a stock is Microsoft (Nasdaq: MSFT). On January 16, 2003, Microsoft announced its first ever dividend after investors were clamoring for some of the company's $43.4 billion in cash (sound familiar?). Shares closed at $55.35 that day, or $27.68 on a split adjusted basis. Factoring in the dividends paid since then, the adjusted close was $21.59. Today, nearly 8 years later, shares are at $25.38.
So Apple investors - please be careful what you ask for.
This article is nothing new. Since Steve Jobs died in October, the clamoring for a dividend from Apple has been enormous. The company's $80+ billion cash hoard makes it an easy target.
While a dividend would appear to be great, investors should be cautious that such a move could also be a death knell for the stock.
The paying of a dividend could signal to the market that Apple is throwing in the towel on growth, transitioning from a hyper-growth story to a value stock.
While it could easily be argued that Apple is a value stock now, trading at a multiple of 11x FY12 EPS estimate, make no mistake - Apple is a growth stock and most investors that are in the stock are investing in growth.
A perfect example of a dividend being the death knell of a stock is Microsoft (Nasdaq: MSFT). On January 16, 2003, Microsoft announced its first ever dividend after investors were clamoring for some of the company's $43.4 billion in cash (sound familiar?). Shares closed at $55.35 that day, or $27.68 on a split adjusted basis. Factoring in the dividends paid since then, the adjusted close was $21.59. Today, nearly 8 years later, shares are at $25.38.
So Apple investors - please be careful what you ask for.
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