Apple Solid Earnings, Unimpressive Dividend Hike

apple iphone 6 intro
Source: Apple Inc.
Apple Inc. (NASDAQ: AAPL) reported its fiscal second-quarter financial results Monday after the markets closed. The iPhone giant had $2.33 in earnings per share (EPS) on $58 billion in revenue, compared to Thomson Reuters consensus estimates of $2.16 in EPS on $56.06 billion in revenue. The same period from the previous year had $1.66 in EPS on $45.65 billion in revenue.

Gross margin for the second quarter was 40.8%, compared to 39.3% in the same period last year. International sales accounted for 69% of the quarter’s revenue.

The company gave guidance for the fiscal third quarter as revenue in the range of $46 billion to $48 billion and a gross margin between 38.5% and 39.5%. There are consensus analysts’ estimates of $1.68 in EPS and $47.06 billion in revenue.

In terms of the segment breakdown:

  • The iPhone segment moved 61.2 million units, totaling revenues of $40.3 billion.
  • The iPad segment moved 12.6 million units, totaling revenues of $5.4 billion.
  • The Mac segment moved 4.6 million units, totaling revenues of $5.6 billion.

Tim Cook, CEO of Apple, commented on its earnings:

We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever. We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.

ALSO READ: What Analysts Thought of Amazon, Google, Microsoft After Strong Earnings

Apple may be still considered a cheap stock against the market for growth investors, but its dividend yield was a mere 1.5% or so. Keep in mind that Apple just recently was added to the Dow Jones Industrial Average index.

After Apple reinstated its dividend in late 2012, the first hike was by 15%. The second dividend hike, in 2014, was roughly 8%. So, why do we expect that the hike has to go up much more in 2015? The simple answer is that Apple’s yield has to go up to make a dent in the dividend game. Taking the dividend hike to $0.60 is nearly a 28% payout hike. Still, does it seem normal that Apple, which has not used any cash yet for mega-mergers, should have such a low yield?

In fact, Apple announced in a separate release that it did raise its quarterly dividend 11% to $0.52 per share, below what 24/7 Wall St. was hoping for.

What about share buybacks? The amount of stock buybacks seemed less clear going into the earnings report. Apple added $30 billion or so to its buyback plan last year, and the company has now spent over $112 billion returning capital to shareholders since it began, including a total of $80 billion in share repurchases.

Tim Cook also commented Apple’s capital allocation plan:

We believe Apple has a bright future ahead, and the unprecedented size of our capital return program reflects that strong confidence. While most of our program will focus on buying back shares, we know that the dividend is very important to many of our investors, so we’re raising it for the third time in less than three years.

ALSO READ: Apple Is the Most Profitable Company of 2014

Shares of Apple closed Monday up 1.8% at $132.65. Following the release of the earnings report, shares were up 1.5% at $134.65 in after-hours trading, pushing a new all-time high. The stock has a consensus analyst price target of $142.13 and a 52-week trading range of $81.79 to $133.60.

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