Is Apple’s (AAPL) Dividend a Warning Sign? Stock Trend Forecast for Next Few Years

Apple’s (AAPL) stock price is currently ruling at around $630, but it isn’t the same company anymore. The stock has had a stellar start to 2012, but now the story appears to be overbought. I am not suggesting that it cannot rise further, but there isn’t much value left. At current valuations it makes no sense to invest in this stock, and my view remains same even after considering the latest dividend trigger. We initiated a buy rating on this stock in Jan 2011 and right now it’s comfortably trading above our conservative price targets. No doubt, they are still going strong and that large pile of cash reserves cannot be ignored, but the recent run-up has been fairly sharp and the stock needs to stabilize now.

Moreover, the stock has moved from $35 to over $600 in last seven years, that’s a huge move! Now, with Tim Cook leading the course of action for the company they have decided to payout a quarterly dividend of $2.65/share which will sum up to around $10 billion for the entire year. The current dividend yield of around 1.75% may not be attractive, but we can’t ignore that finally it’s Apple that’s paying dividends. Apple (AAPL) Stock Price Chart from 2005 to April 2012

Why Apple’s (AAPL) Dividend is an Alarming Signal?

I am not a big fan of dividends but this time it looks like an alarming signal. To confirm my fears Apple announced a buyback worth another $10 billion. So far it’s good for the shareholders, but to me it appears to be a well-planned exit strategy. There is nothing to panic right away, but this dividend payout should be seen as a signal that business growth can take a tumble in next 3-5 years. Well, it will be interesting to see what Apple does with remaining cash. Apple isn’t known for major acquisitions, so investors should be eying their innovative edge, as any disappointment on that front could cripple this growth story. Let’s not forget that a dividend is a dividend and it does not matter who is paying it. The fact is Apple couldn’t find a better use for its cash reserves. So, Apple should not be seen as a growth stock anymore.

Apple (AAPL) Stock Strategy for 2012 and Beyond

It’s not a short-sell by any means; one should never even attempt to short such stocks. But, above $600 one should consider booking profits. In my view, the stock has a limited upside in 2012 and it may not rise above $680 even if the broader market continues with the ongoing strength. I expect this stock to enter a sideways channel and remain extremely volatile within a broad range. This range could be anywhere between $320- $800 for next few years.

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Comments: 5
01 May 2012

Time will prove you are all stupid wrong

11 April 2012

Business growth for Apple Inc may still have some room left, but I agree with you that the stock price seems to have over-extended its run. Why would anyone buy this stock now? This may appear attractive to some newbie only, as they are the ones who always get trapped when the stocks are all ripe for profit booking.

    11 April 2012

    Agree, but no one should attempt to short-sell Apple. They may face significant margin pressures amid growing competition, as the sector showing signs of maturing. But, they have cash reserves to keep the investor sentiment going for years to come. I would say it should be rated as a “Hold” than a buy or sell.

Tim the Trader
08 April 2012

I don’t think the stock will see a hard landing. Though, I agree with the author that Apple is not the same company anymore. In my view, the Apple stock could be ranged between $400 and $650 for 2012

Apple Insider
08 April 2012

Apple has surely lost its innovative edge. Tim Cook failed to put all that cash to some innovative use. Tech investors don’t find dividends too enticing, so the stock could be headed for a hard landing.

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