Apple Inc. is one of the most valuable company in the world! Right now Apple Inc. (AAPL) share price is at USD$126.74

At this price, Apple Inc. is valued at price-to-book ratio of 30.57 and a trailing distribution yield of 0.65%

With the current valuation, would I invest in it?

Let’s go through it using my 7 steps guide and see how I pick the Best United States Dividend Stocks.

Apple Inc. (NASDAQ: AAPL) 5 Year Chart

As a quick recap, here are the 7 steps I use to pick the Best Dividend Stocks in the United States.

  1. Debt to Equity Ratio (Replaced by another metrics)
  2. Dividend Yield
  3. Dividend payout ratio
  4. EPS Growth Rate
  5. Return of Equity (ROE)
  6. Price-to-Book Ratio (Replaced by another metrics)
  7. MOAT

Business Background

Apple Inc. is founded by Steve Jobs in April 1976. Apple Inc. is the creator of everything “i”, iPhone, iPad etc. Apple Inc. designs, manufactures and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. Their products are known to be user friendly and high quality.

Business:

  • Smartphones (iPhones)
  • Personal Computers (Mac)
  • Wearables
  • Accessories
  • Home electronics

Services:

  • AppleCare support
  • Cloud Service
  • Apple Store
  • Payment Platform (Apple Pay, Apple Card etc.)
  • Operation platform (ISO)
  • Intellectual property rights

Customers:

  • Consumers
  • Small and mid-sized businesses
  • Education institutes
  • Large enterprise
  • Government markets

Headquartered in Cupertino, California, Apple Inc. sells its products through its retail and online stores, and direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers.

Apple Shop Marina Bay Sands Singapore Headquarters

DEBT TO EQUITY RATIO

Check for: Less than 0.5 D/E Ratio

Looking at the financial ratio online.

AAPL have a D/E ratio of 1.9478.

This is higher than 0.5 D/E Ratio.

With a D/E ratio of more than 0.5, this means, the company’s operation is mainly driven by debt.

But for Apple Inc. use of D/E ratio to measure it’s health of the balance sheet may not be the right way.

Apple have a lot of intangible assets such as intellectual properties and technology which does not counts into the equation on the calculation of the Equity.

As per written in my previous article on the limitations of the D/E ratio, especially for Technology stocks. D/E ratio will not be a good way to measure Apple Inc.’s health in the balance sheet, thus this metrics is not applicable.

Another metrics will be used instead.

My Opinion: N/A

Dividend Yield

Check for: More than 2.5% dividend yield

For Year 2020, AAPL pay a dividend of 0.82 which translate to a dividend yield of 0.65%.

This is much lower than my target of 2.5% risk free interest rate.

Apple Inc. have only recently started distributing their dividend. As a growth stock, Apple Inc. have the potential of increasing their dividend in the future.

But with such low dividend yield, it won’t be a good stock to buy for dividend investors like me.

My Opinion: Fail

Dividend Payout Ratio

Check for: Less than 80% dividend payout ratio

At the time of writing, a quick check using some of the online tools shows that the dividend payout ratio for AAPL is 18.34% which is way below my threshold of 80%.

A payout ratio of less than 80% is a good sign where the company have room to increase the dividend payout in the future

With a dividend payout of just 18.34% Apple Inc. is able to utilize it’s free cashflow for innovation and expanding of it’s market.

As a technology company, innovation is probably one of the most important aspect to ensure the company’s survivability and growth.

Some other companies that requires high level of innovation are Technology and Pharmaceutical company such as; Tesla, Intel, Google, Pfizer, Novartis, Merck etc.

These companies tent to have more free cash flow retained for growing of the business.

Thus, I think a payout ratio of 18.34% is reasonable.

My Opinion: Pass

EPS Growth Rate

Check for: More than 10% EPS Growth

Earning Per Share (EPS) is probably what I will be drilling into for dividend stocks. Since this is one of the best growth company loved by even Warren Buffett himself. I will probably expect their EPS to pass my criteria.

Quick check using online tools.

The EPS 3 year growth rate is 12.48%! Nice!

Yup, the EPS growth for Apple with a Market Cap of 2 Trillion is able to achieve a EPS growth rate of > 10%!

This is just amazing!

Usually companies with such a high market cap will not have such high EPS growth rate.

Apple Inc. must have done something right to achieve an EPS growth rate of >10%.

My Opinion: Pass

High Return Of Equity (ROE)

Check for: More than 10% ROE

ROE is one of the most important ratio to check on the management effectiveness of a company.

Return of Equity is used by Warren Buffett to give us an idea of how well is the money being used by the management of the company.

At the time of writing, the ROE of AAPL have an ROE of 103.4%!

Yup, you didn’t read that wrongly, the ROE is over 100%!

This means that the company is able to help its shareholders to get an amazing return on their investment.

103.4% ROE is way better than my threshold of 10%!

Such high ROE is almost unheard of and rarely seen in companies with Trillions of dollar in market cap.

My Opinion: Pass

PRICE-TO-BOOK RATIO

Check for: P/B Ratio of less than 1.8

Apple Inc. is a Trillion dollar blue chip company with a long rich history of exceeding it’s user’s expectations.

Therefore, the price of the stock will most likely be traded above it’s valuation (book value).

At the time of writing, the current P/B ratio of AAPL is 30.37.

Similar to the analysis of D/E ratio, P/B ratio will not be a good metrics to analyze Technology stocks as it’s intangible assets are not included in the calculations.

An alternative metric is used for this calculation.

My Opinion: N/A

MOAT

Check for: Not just having a MOAT, but a great MOAT

Apple Inc. hands down have one of the best MOAT in the Technology Stocks.

In fact, Apple Inc. is the text book example of a company with a strong unbeatable MOAT.

Apple Inc. have 2 very strong MOAT as stated in Rule#1 investing:

  • Switching MOAT: With an whole ecosystem of Apple products, users of Apple find it very hard to switch out of Apple and use Android Smartphones of Windows Laptop.
    • How often do you hear someone says,
      • “I’ve try using a Samsung Smartphone but in the end, I still buy an iPhone because I am just not used to the Android system.”
      • “I’ve all my music and document files in the iCloud, it is so convenient, I won’t want to switch to other service providers or I won’t be able to access my files.”
  • Brand MOAT: The Apple brand personality is about lifestyle, innovation, passion, dreams and power. These are really strong brand identity which are desirable to it’s users.

With these 2 strong MOAT, it makes Apple Inc. differentiate itself from its competitors such as Microsoft, IBM, Dell, Amazon, Samsung, HuaWei, XiaoMi or even Google!

My Opinion: Pass

Price to Earning

Check for: Less than 20 PE

As Apple Inc. is a Technology stock which makes metric such as P/B ratio not as useful.

Assessment of the company performed with just 5 of the criteria will have a major missing link.

No stock is worth an unlimited price!

But without P/B ratio, there is no way for me to know how “expensive” or “cheap” is the company.

To solve this issue, PE is to used to assess the company.

Quick check using online tools it shows that,

AAPL have an PE of 28.49.

This is above my threshold of 20.

My Opinion: Fail

CURRENT RATIO

Check for: More than 1.2 for Current Ratio

As Apple Inc. is a Technology stock which makes metric such as D/E ratio not as useful.

Assessment of the company performed for just 5 of the criteria will have a major missing link.

No indication of a healthy balance sheet.

But without D/E ratio, there is no way for me to know how ready is it in meeting its debt payment.

To solve this issue, current ratio is to used to assess the company.

Quick check using online tools it shows that,

AAPL have an current ratio of 1.14.

This is below my threshold of 1.2, but above 1.

My Opinion: Partially Fail

Overall

Apple Inc. have a final score of 6/10.

As Apple Inc. is a Technology stock the metrics used to measure the company should be different.

D/E ratio and P/B ratio are removed from the metric.

Instead PE is used in pace of P/B ratio.

Current Ratio is used in place of D/E ratio.

Below is how I’ve scored AAPL.

My Apple Inc.’s Score Card
Metrics Weightage Score
Dividend Yield Low (1) 0
Dividend payout ratio Low (1) 1
EPS Growth Rate Low (1) 1
High Return of Equity (ROE) Low (1) 1
MOAT High (2) 2
PE (Replace P/B Ratio) High (2) 0
Current Ratio (Replace D/E Ratio) High (2) 1
Total 6

Therefore, I will keep Apple Inc. on my watchlist.

Would you invest in Apple Inc.?

Let us know in the comments below!

Disclaimer/ Disclosure: I may or may not own some of these stock that is written in my website. I am NOT a Financial Advisor or a Lawyer. The content on this site, or YouTube channel, or any other sources are for educational purpose only. I merely cite my own personnel opinion and is not intended to be personalized investment advice. ​What I've written here is part of my online diary on my investing journey. The information might be wrong and inaccurate. You must conduct your own research and seek the advice of a licensed financial advisor if necessary. Know that all investments involve some form of risk and there is no guarantee that you will be successful in making, saving, or investing money; nor is there any guarantee that you won't experience any loss when investing. I will not be liable for any loss you've make. You should always do your own due diligence and consider your financial goals before investing in any stock.

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