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Apple Inc. Isn’t Worth Buying for Income

apple inc. (NASDAQ:AAPL) going private

Apple Inc. (NASDAQ:AAPL) sits on more cash than almost any other company in the world, but the firm isn’t a fan of returning that money to its shareholders. Despite one of the largest return programs int he world, investors simply shouldn’t buy Apple for the income.

golden-apple-ss

On CNBC yesterday analyst Daniel Ernst from Hudson Square Research said that buying into the shareholder return program isn’t a good idea. Apple, and tech and general, is about growth and that’s what’s going to drive the value of the stock according to the analyst.

Apple dividend explained

Apple hasn’t been paying a dividend for that long. After years of returning nothing to shareholders Tim Cook instituted a dividend in 2012. In 2014 the company paid 47 cents per share per quarter, a total of $1.88 per year or a yield, the dividend divided by the stock price of 1.5%. The firm decides whether to update its dividend when it releases its first quarter earnings.

Apple buyback targets

Apple also returns money to shareholders by buying its own shares in the open market. The company has authorized a buyback of $90 billion of those shares. So far it has spent $68 billion of that sum. The company has announced an expansion of its buyback program in its first quarter earnings report for the last number of years.

The buyback reduces the number of shares available on the market, thereby increasing the income attributable to and the voting power of every outstanding share.

Betting on Apple income

Mr Ernst from Hudson Square doesn’t think that Apple is going to cancel its dividend, or that the company is going to drop the buyback program. He reckons that income isn’t moving Apple stock, and investors should buy in for growth.

Since Tim Cook took the top spot and Apple began returning cash to shareholders through its dividend and buyback programs, it became popular for analysts to reveal that the company had exited its growth phase. According to that line, the company was maturing and bringing value to shareholders rather than concentrating on rapid growth going forward. Mr. Ernst, and many other analysts, disagree with that thesis.

Apple is still a growth stock

Apple’s revenue grew by 32% year over year in 2014. That’s quicker than Facebook. The company has not yet exited its growth phase, but it is growing into its role as a growth company. According to Ernst, You buy Apple stock because you think for the next five, 10, 20 years, they’re going to continue innovating and growing top line and bottom line like they have for the last 15, 20.”

That’s the thinking he reckons dominates the minds of Apple investors. Speaking on CNBC’s Squawkbox he said “At the end of the day, tech is about growth. If they were just doing the buybacks and they weren’t growing earnings, then the stock wouldn’t be up.”

Citigroup analyst Jim Suva, despite looking fora 10% rise in dividend from the company, mirrors that psychology. Despite anlayzing the company’s return program, he’s looking for huge growth from Apple Pay, the Apple Watch, and enterprise iPads.

Apple says that it will hold its earnings report for the first quarter on Monday April 27 after the market closes. The company may announce a massive dividend increase for the remainder of the year, and it may give a boost to its share repurchase program, but investors should remember that the company’s value is growth based. If Apple fails to manage that growth properly, a hefty chunk of value will be lost.

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