The Company in a Nutshell
- Apple depends on the iPhone’s growth to generate the bulk of its cash flows.
- The company generates about 40% of its revenue in the Americas and 60% internationally.
- Apple shares its wealth with shareholders through dividend payments and share buybacks, but still keeps large amounts of cash on hand.
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What the CEO said: What we say:Investment Thesis
There is continued interest among consumers of premium products. AAPL’s first growth vector remains its iPhone. It is also seeing double-digit growth in its Services division, which generates higher margins; services such as Apple Pay, Apple Music and Apple TV represent just the tip of the iceberg. As more iPhones are purchased, their users are inclined to purchase the services related to them. The company recently reported it crossed the 2B active devices mark in early 2023. Apple’s iPhones and IOS are beloved by customers and are a symbol of stability and security in terms of technology. Management has become increasingly shareholder-friendly, as evidenced by strong dividend growth and massive share buybacks. AAPL is among the rare companies that don’t need to be first movers in a new market. It has the cash flow and expertise to develop products and gain market shares once the market is developed (just think of the Apple Watch’s success).Dividend Triangle
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Potential Risks
We fear a recession would impact Apple’s results. However, the company still sees many loyal customers upgrade their phones, and it seems to have happened again with the next generation of iPhones. However, the company is facing short-term headwinds that will weigh on its results in 2023 (notably supply chain disruption in China, currency headwinds, and weaker sales due to customers’ budget restraints). It is well-known that tech companies must continually innovate their product offerings to remain on an even playing field with their competition. Apple protects its core products with a strong product ecosystem and additional services. However, the introduction of a competitor’s new phone that could potentially erode iPhone sales remains a possibility. It’s also hard to imagine how much Apple can keep improving its own phone with better cameras and stronger processors. Finally, the competition in artificial intelligence has many contenders, such as Amazon and Google, just to name a few. Our biggest concern in the short term would be the tech sector’s performance, but in the long-term, Apple should continue to perform well.
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Dividend Growth Perspective
An investor shouldn’t be fooled by the low yield as AAPL will double its payment every 8 years going forward. Both payout and cash payout ratios are very low. With strong sales growth and consistent earnings increases, the company should maintain a double-digit dividend growth rate for years to come. Unfortunately, the latest dividend increases were only of 4.5% (from $0.22/share to $0.23/share) in 2022, 4.3% in 2023 and 4.2% in 2024. The company continues to post solid cash flow generation, but management decided to approve a $100B share buyback program instead of purely increasing its dividends. As long as they are giving money back to shareholders, we don’t mind much.
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(Data for `ddm_recent_annual_dividend` field are missing to build DDM tables)
Video Tutorial: How to Read the Stock Cards DDM Valuation
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Please note that:
- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.