Last Thursday, after the close of the market, Apple (AAPL) posted a $3.05/share dividend. I have Apple stock in both my normal brokerage account as well as my Roth IRA.
I currently have the checkbox switched on such that those dividends get reinvested automatically to buy more shares. That way I can grow my holdings automatically for no brokerage fees. If I was pulling in a significant chunk from Apple, I would rethink this strategy. But right now, it’s not such a fell swoop.
Apple has a strong balance sheet. What does this mean? Their market cap value (total number of shares * share price) is $472 billion, making it the biggest company in the world, EVER, with Exxon Mobile (XOM) a close second. (For those of you that are curious, Google and Microsoft trail in 3rd and 4th position). But the amount of cash it has sitting in the bank is around $150 billion, i.e. 1/3 of it’s market cap.
Now this money isn’t pure cash akin to a money pit with Scrooge McDuck swimming through it. Instead, they hold various securities, long and short term. But the point is, they have lots of incoming revenue AND dividends from their securities. And these securities can be converted into liquid cash in a heartbeat. If they want to buy a company, they can cash out, offer shares, or make any other creative arrangement. The point is, they are poised to grab any top technology that can meet their interests.
This is one of the fundamental reasons people say even today, at $525/share, Apple is still undervalued. If you drill into technical stats some more, you will find a P/E ratio of 13.21 that says it’s not too expensive, nor is it particularly cheap (like BP).
But let’s not get hung up on the technical aspects of the stock. I fear too many people only look at these metrics to make decisions. They are simply readings of what’s going on underneath. You need to understand a business before you buy it. Something of value to understand, and what many people miss, is the right stats. Android devices have easily surpassed Apple in market share, but that is irrelevant. When it comes to building wealth, the key factor is money, not market share. And Apple holds a big piece of the profits of smartphones and tablet devices. Simply put, Apple keeps on counting the cash from its increasing sales of devices, cash flow from its iTunes store, and cash flow from its short & long term assets it is using to “hold” its cash.
Before you go out and buy Apple stock, be sure you understand how this company works and how they fare compared to Google, Samsung, and the Android market. You don’t want to get shocked by some media report that suggests “Apple is dying” and sell your stock in a panic, when they are solid for the time being.