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Apple’s dividend growth attracts investors despite warnings

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Mark Hawtin, Investment Director, GAM warns that Apple is a one product company. “This quarter, once again, the iPhone stood out for its revenue and volume growth, spurred by China and emerging markets where Apple is winning over Android by a significant margin. This is thanks to the introduction of a large screen format which is particularly favoured in emerging markets,” he writes.

“Apple is a one product company. Nothing else really moves the needle and the growth of iPad and Mac sales is not even close. It seems clear that the iPhone 6+ is cannibalising iPad sales – iPad revenues were down 29 per cent year-on-year in the first quarter, most likely hurt by the better iPhone volumes as well as an elongation in the replacement cycle. 
 
“Looking at the Apple Watch, initial indications suggest it might be less successful in volume and profitability than expected. Currently, the information available on the Watch is very qualitative and there is a lack of clarity. Apple announced that it is not making enough watches to meet demand, but we do not know what the demand is or how many watches are being produced.
 
“Apple is definitely benefiting from the phenomenal success of the iPhone 6 at the moment, but we remain concerned that margins will eventually start to give way. In consumer electronics margins always eventually close and although Apple might be different, there are currently many higher growth businesses with more compelling, sustainable business models.”
 
However, with the Monday announcement that Apple, the world's largest company by market value, had raised its quarterly dividend 52 cents a share from 47 cents a share, it has lost none of its appeal for investors. California-based Apple's USD1.16 billion dividend increase is the 20th largest dividend increase by a member of the S&P 500, according to the S&P Dow Jones Indices.
 
New York’s The Street comments that since Apple reinstated its dividend in 2012, after a 17-year absence, its payout has climbed 37.5 per cent.
 
“Apple now has USD194 billion in gross cash and marketable securities, and there is ample room for future dividend growth” The Street says.
 
ETFs that offer investors’ exposure to Apple include dividend ETFs such as the First Trust Nasdaq Technology Dividend Index Fund that is devoted exclusively to technology stocks and includes close to 8.2 per cent to Apple, making it the third largest holding behind Microsoft and IBM.
 
WisdomTree’s LargeCap Dividend Fund has a 3.7 per cent Apple weighting, putting it at the top of its list of holdings and the FlexShares Quality Dividend Defensive Index Fund has a 3.6 per cent Apple allocation, making it its third largest holding.
 
 
 

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