Taking Stock

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Tony Crowell

A Good Apple

Apple celebrated the arrival of Spring with an eagerly awaited dividend announcement. Holders will receive a quarterly dividend of $2.65 a share sometime during Apple’s third fiscal quarter, which begins in July. Apple being Apple with its record of understating expectations, this will probably initiate an extended period of periodically increasing payments.

At its current price around $600, Apple’s new dividend yield is 1.8%. That’s slightly less than the 2.1% yield on the entire S&P 500 group of 500 large stocks but twice that of the sub-sector of technology stocks. My other two favorites in this group, Intel (INTC-$28) and IBM (IBM-$205), yield 3% and 1.5% respectively. These yields are similar to current yields on long-term government bonds and I cannot imagine any good reasons for individual investors to prefer the illusory safety of these bonds.

Dividends count. All studies of the long-range returns on stocks include a significant component of reinvested dividends. As Apple is a much-admired company, it is quite possible that its action will inspire initial dividend payments by other companies. Google (GOOG-$645), as a leading example, bounced up after Apple’s action, apparently inspired by hopes or rumors that it might initiate dividends.

Google’s price bump seems premature although such a move would show a welcome concern for its shareholders. Its search engine business is highly profitable but it devotes much activity to more experimental ventures. Google could easily afford dividends but I prefer Apple stock. Illogically, Apple continues to be valued at more reasonable levels than headline-hunting Google.

Amazon (AMZN-$193) could also join the dividend club but its sky-high valuation of over 100 times earnings is troubling. Amazon is a great company but there are better stock values in abundance.

Two of these continue to be my friendly corporate divorces-Abbott Labs (ABT-$60) and Conoco Phillips (COP-$76). Both are moving toward their divisions into two companies while continuing to increase their financial results while paying 3.5% dividends.

Apple’s action could renew overall attention to dividend levels, which began to be dismissed as old-fashioned during the dot.com boom of the 1990’s. Going even further back, dividends were of great importance during the roaring 1920’s when there was no SEC to prod companies into releasing information; dividend news was then almost the only indicator to company progress.

A gentleman of the old school who had served on several boards during this period once told me that it was then customary to recess board meetings if the directors elected to omit the dividend. This permitted them to phone their brokers and short the stock. While similar ambitions seem to persist, investors now enjoy more fair play with the SEC and other institutions.

These include the Federal Reserve, which gets its usual criticism during an election year, but should receive some credit for having helped save the global economy. Its continuing policy of active market intervention to keep interest rates low is helping induce signs of economic recovery.

There are even a few signs of revival of that old devil, inflation. That will ultimately force somewhat higher interest rates from today’s record lows. Rising rates savage bond prices and ProShares Ultra Short 20+ (TBT-$20) is a useful hedge against this.

Most investors already have, in effect, an inflation-adjusted bond portfolio through Social Security. They can profitably ignore fixed return bonds for stocks with realistic prospects for increasing dividends. It’s nice to have Apple, our largest position, join that club.

 

 

 

 

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor. 

CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1993. [email protected] 949.494.1376/

800.697.2622 www.crowellroberts.com\\\\

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