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Michael Fowlkes' Analyst Insights

InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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Apple to announce dividend increase

Michael Fowlkes

4/22/2017 11:54 AM

What's Happening

Tech giant Apple (AAPL) has put together a 4-year streak of dividend increases, which it will likely extend this week. The stock currently pays a $0.57 quarterly dividend, good for a 1.6% yield. Shares have trended steadily higher over the last year, and are up 22.6% year to date.

Technical Analysis

AAPL was recently trading at $142.37, down $3.09 from its 12-month high and $52.90 above its 12-month low. Technical indicators for AAPL are bullish with a strong upward trend. The stock has recent support above $137.00 and recent resistance below $145.50. Of the 32 analysts who cover the stock, 19 rate it a “strong buy”, six rate it a “buy”, five rate it a “hold”, and two rate it a “strong sell”. The stock receives S&P Capital IQ’s 5 STARS “Strong Buy” ranking.

Analyst's Thoughts

After years of not paying dividends, and a lot of pressure from investors to start using its massive cash hoard to return some cash to investors, Apple started paying dividends again in 2012. Since then, the company has increased its quarterly distribution each of the last four years, and it will likely build on that streak of increases when it announces its next dividend this week. The stock has a pretty low 25.5% payout ratio, and with the company’s huge cash hoard, there is no reason why the company will not opt to extend its streak of increases. Last year the company boosted its dividend by 9.6%, and by 10.6% in the previous year. With the low payout ratio, I would expect this year’s increase to fall in the same range as the last two. Look for the quarterly dividend to rise from $0.57 to around $0.63, for an increase of 10.6%. Look for the news this week, with the stock trading ex-dividend during the first week of May.

Stock Only Trade

If you're looking to establish a long stock position in AAPL, consider buying the stock under $142.25. Sell if it falls below $128.00 or take profits if it gets to $163.50.

Bullish Trade

If you want to set up a bullish hedged trade on AAPL, consider a July 120/125 bull-put credit spread for a 35-cent credit. That's a potential 7.5% return (30.2% annualized*) and the stock would have to fall 12.0% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a July 160/165 bear-call credit spread for a 25-cent credit. That's a potential 5.3% return (21.1% annualized*) and the stock would have to rise 12.6% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a July $145.00 covered call. Buy AAPL shares (typically 100 shares, scale as appropriate), while selling the July $145.00 call for a debit of $138.60 per share. The trade has a target assigned return of 4.6%, and a target annualized return of 18.7% (for comparison purposes only).

 

 

 

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