In the time it took Apple’s market cap to grow 200%, its share price climbed 264%.
From Cybart's "Apple Share Buyback Impact on Market Cap and Share Price" posted Wednesday to Above Avalon subscribers ($):
Here are the major market cap milestones for Apple:
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- August 2nd, 2018: $1 trillion market cap
- August 19th, 2020: $2 trillion
- January 3rd, 2022: $3 trillion
And here are Apple’s closing (adjusted) stock prices for the days in which a market cap milestone was reached:
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- August 2nd, 2018: $50 per share
- August 19th, 2020: $115
- January 3rd, 2022: $182
While Apple’s market cap increased by 200% between August 2nd, 2018 and January 3rd, 2022, Apple’s share price increased by 264% during the same time period.
The explanation behind this divergence is found with Apple share buyback’s impact on the number of shares outstanding. As Apple buys back its shares, the number of shares outstanding declines because the company retires repurchased shares and takes them out of circulation instead of keeping them on the balance sheet.
My take: It's a simple formula. Market cap = share price X number of shares outstanding.
So why do analysts insist that the P/E of about 32 at this time represents an over-valuation, when clearly a P/E of 40+ didn’t? Because (a) they’re ignorant of Apple’s amazing cash flow and the genius of Apple’s stock buyback concept, (b) they’re obsessed by the valuations of the last 13 years, and still insist that Apple WASN’T horribly underpriced at the time (probably because they told their clients it was fairly priced), (c) they want to temporarily sink the stock price so they can buy it cheaper and sell it at a higher price over and over, or (d) they work for Apple’s competition and dinging the stock price is one way to take a bit of shine off the company.
I see you’re still up…
“I really don’t know why you choose to focus on a coincidental metric rather than the company’s growth prospects.”
I’ve tried to explain, but…
Anyway, Apple’s growth prospects are almost limitless, and I’ve been saying so for years and years.
Oddly, I’m convinced that their financial success is in large part due to their NOT focusing on financial success! I honestly think Tim Cook and Co. are just as blown away as the rest of us by the sheer magnitude of their financial success. So much so that they are literally struggling to get to net cash neutral.
Which is one of the main reasons I feel very safe in saying that even at the present valuation, however you want to measure it, they are still very, very undervalued.
Except for the last few weeks, AAPL has tracked the S&P 500, and now they’re back to tracking it again.
Big mistake.
1. Wide economic moat
2. Exemplary stewardship rating
3. Quality ranking of A-, A, and A+
4. Distance of 10% or greater from current price targets
5. Dividend yield of 2% or more
From the outputs I do lots of reading and research. By and large overall performance on a total return basis is quite competitive – annually and long-term. I will deviate slightly on some of the inputs if an equity presents what I consider to be a compelling opportunity based on cross-referencing research from multiple firms.
“Joe: I look not just at yields.”
Good, and I never said you did. But plenty do, and it misses the big picture.
I think AAPL is getting close to fairly valued. When that happens, and it may take getting to net cash neutral to get there, I trust that Apple will increase the percentage it returns via dividends vs buybacks.
I just don’t think Apple thinks we’re there yet.
And now I really have to hit the hay, although this has been fun!
Good night, Robert!
Helps the “revenue neutral” goal, doesn’t it?
Jus’ sayin’.
I haven’t found a graph of AAPL dividend yields over time but we know that AAPL share price appreciation has always outpaced annual dividend yield increases. Per Investopedia, Apple’s quarterly dividend grew by an annualized rate of 9.1% from the second quarter of 2016 to the second quarter of 2021.
Apple’s quarterly dividend as of the second quarter of 2021 was $0.22 per share. Based on Apple’s stock price as of July 18, 2021, of $149.39, its annual dividend yield was 0.6%. Today, even with the recent pullback, Apple’s share price increase has pulled the dividend yield down further to 0.51%.
It’s certain Apple will raise its dividend again after the annual meeting, and the raise will be in the 7-10% range, to 0.94-0.97/share. That would barely raise the yield at current price to 0.56%. As an exercise, to get back to the 1.5% yield, Apple’s dividend would have to be $2.58/share annually or $0.645/quarter, an almost 3x increase, which is unlikely to happen.
Currently, Apple is paying out ~$3.61B/ quarter, $14.5B annually in dividends. At the higher yield of 1.5%, that payout would be $10.6B/quarter and $42.4B annually. That’s a huge chunk of cash to be doling out and mighty tax inefficient for shareholders, although providing a somewhat improved income stream. Apple’s share buybacks are a much more efficient way to return money back to shareholders (at the time of their appreciated share price selling choice) and much more tax efficient for all, in addition to effects on EPS, share ownership, and cash neutral goal.
So at these price and yield levels, Apple is never going to be a real dividend play anymore and income investors would just have to settle for superior share price appreciation. Such a shame, a tough decision.
It’s definitely a boat to balance as dividend payouts are a polite and glad-handed way of putting money on the table to keep investors satisfied about the faith of performance you have in your business, but admittedly, the healthier spend is retiring shares…until the next split where the process rolls over to keep that boat balanced all over again.
These are all good points, and it seems to me that Apple is trying VERY HARD to get to net cash neutral for exactly the reason you stated; that is, to rebalance into dividend growth and a higher yield.
But they almost literally have a cash flow tiger by the tail with their massive yet continually increasing cash flow. As such, when the market refuses to award them a proper valuation, they’d be remiss NOT to buy back their undervalued stock!
But what is fairly valued AAPL worth? Ask six people and you’ll get six different answers. But really, that’s irrelevant. There’s not a doubt in my mind that Apple knows exactly what their stock is REALLY worth, and that they’re making sure their most loyal investors (Apple longs) will receive the best possible ROI they can get them.
“Apple could easily double the dividend while keeping share repurchases on track.”
They could, but I trust they aren’t because they’ve done the calculations and seen the superior long term benefits to using buybacks. Sure, you could argue that giving dividends allows investors to pick other places to invest. But they can do that anyway by selling some of their AAPL
P.S. Here in Australia capital gains are taxed at half the rate of dividends – so I much prefer the share buyback program.
“…in 2012 they were yielding 1.577% but have fallen steadily to around 0.51%…”
Nope. The yield didn’t “fall”; the stock price went up. Remember: Yield is based on two pieces of data. If the stock price hadn’t gone up, then, all else being equal, the yield would have gone up.
The same mechanism that Mr. Cybart is pointing out impacts market cap is also impacting dividend yield.
Ironic, isn’t it? In this instance, a smaller yield is literally signalling your investment is doing great!
“Not necessarily.”
Of COURSE not necessarily! But in Apple’s case, very much necessarily. You and I both know that Apple has been giving very nice bumps in dividends every year. If the price weren’t almost literally exploding, the yield would look far better- but you woildn’t be earning a dime more!
Looking at yields is a lousy way to pick an investment, IMHO. Far better to look at yearly percentage increases.
“Why do you say Apple is doing great when you have a fair value estimate of $250 per share…”
Because of the progress we’ve made towards fair valuation. We’re not there yet, but we’re definitely closer than all those years when we dipped repeatedly to a P/E of 10…,