90 Billion Reasons To Buy Apple Stock

Apple (AAPL) is a cash producing machine, and the company distributes massive amounts of capital to investors via dividends and buybacks year after year. Over the trailing twelve months, dividends and buybacks together amounted to nearly $90.6 billion. Cash is king, and cash distributions from Apple are a powerful tailwind for investors in the company.

Massive iCash Flows

FAANG stocks are widely discussed nowadays, and many investors consider that these tech giants are overvalued at current prices. Personally, I believe that this is a short-sighted view of the issue, valuation should always be analyzed on a case-by-case basis, and considering the company's long-term growth prospects in addition to traditional metrics such as price to earnings or price to sales. In other words, the true value of the business depends on the cash flows that the business is going to produce over the long term, so considering only current cash flows can be misleading.

When it comes to Apple, however, that discussion is quite easily solved because the stock is very reasonably priced based on current cash flow generation. The price to free cash flow ratio is currently in the neighborhood of 21, which is hardly excessive for one of the strongest businesses in the world.

Even better, the company distributes a large share of those cash flows to investors in the form of dividends and buybacks. It's one thing to say that a company is reasonably priced based on the cash flows that it generates and retains, but when it comes to hard cash distributions to investors, then undervaluation becomes far more tangible

Over a trailing 12-month period, Apple allocated $14 billion to dividends and $76.6 billion to buybacks, reaching $90.6 billion in total cash distribution. This brings the total shareholder yield, meaning dividends and buybacks as a percentage of market cap, to nearly 6%. Not bad at all in times when a 10-year US Treasury bond is yielding a minuscule 0.67% per year.

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Disclosure:I am/we are long APPLE. 

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship ...

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