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On January 27th Apple Inc. (AAPL) reported a blowout quarter, selling a mind boggling 9 iPhones per second during every 24 hour period over the entire prior three months. Those amazing results helped lead Apple to produce the single greatest quarter ever reported by any public company as it tallied total profits of $18 billion. The company’s recent market value also exceeded $700 billion, a level never before reached by any company. These results mean they now sit on $178 billion in cash and marketable securities, equal to almost $31 per share. Apple has been using this cash to return capital to shareholders through dividend payments and share repurchases.

Though Apple had paid a dividend early in its corporate life it suspended it in 1995 while the company struggled mightily. As their unbelievable renaissance has continued over the last decade, they began paying a dividend again in 2012 and subsequently raised it 25% since that time. Virtually overnight they have become the 2nd biggest dividend payer in the world on an absolute basis.

We began buying the stock in our strategy in mid 2013 after the 2nd dividend raise was announced as we felt the valuation of the stock and it’s strong fundamentals, combined with a developing dividend culture backed by a fortress balance sheet was just too compelling to ignore. Since that time the stock has doubled in price and investors have enjoyed growing cash dividend payments in addition. Given continued strong fundamentals and massive cash balances, we believe dividend payments will continue to rise and expect Apple at some point in the near future to become the single biggest dividend payer in the world.

The point of this tidbit is to update some thoughts on the company, in addition to highlighting the need for dividend focused investors to be disciplined, but not dogmatic. In other words, it is highly important to have an approach that sets disciplined boundaries for the kinds of companies sought to be included in a portfolio, but it also highlights the risks of being to formulaic or dogmatic as to who can potentially be added. Most dividend strategies look for either the highest yield available (where inadvertent risks lay in wait), or require a certain number of years of payment (or payment growth) to be produced before a position can be established. This has led most dividend investors to be out of Apple. A flexible approach, allowing for a thoughtful understanding of a company’s quality, balance sheet strength and changing attitude and culture towards dividend payments may be a wiser path. We think Apple has been a good example of that approach.


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