Advantages Of Reinvesting The Apple Dividend

Mar.22.12 | About: Apple Inc. (AAPL)

As announced in their conference call, Apple, Inc. (NASDAQ:AAPL) will begin to pay a quarterly distribution to its shareholders in the form of a dividend. The distribution will be $10.60/share annually or $2.65/share quarterly. That amounts to roughly $9.88 billion in annual distributions or a yield of roughly 1.7%. Even though many investors feel that may be on the low side of estimates, the company also announced a $10 billion stock buyback plan which will commence in Q1 of fiscal 2013.

The Cash Theory - Let's say a shareholder held 100 shares of AAPL, which currently trades at around $590 per share. If that shareholder held the stock for 10 years, he or she would receive roughly $10,600 in total dividends, (we're not including any appreciation (or depreciation) in the value of the stock). That's actually not too shabby. However, there's a much wiser school of thought.

The DRIP Theory - For years, Dividend Re-Investment Programs (DRIPs) have been a great tool for the dividend investor. Why? Because the investor not only gets the cash distribution, but that cash distribution gets reinvested into the stock creating more shares. Using the above example the shareholder still has their base 100 shares and the $1060 in dividends sitting in a low interest money market account. If we were to use the stock theory on an annualized basis, the following would be the result.

Shares

Share Price

Total Dividend

New Shares

New Value

Base

100

$590

0

0

$59000

YR1

100

$590

$1060

1.7966

$60059.99

YR2

101.7966

$590

$1079

1.8288

$61138.99

YR3

103.6254

$590

$1098.42

1.8617

$62237.39

YR4

105.4871

$590

$1118.16

1.8952

$63355.58

YR5

107.3823

$590

$1138.25

1.9292

$64493.79

YR6

109.3115

$590

$1158.70

1.9639

$65652.49

YR7

111.2754

$590

$1179.52

1.9990

$66831.90

YR8

113.2744

$590

$1200.71

2.0351

$68032.61

YR9

115.3095

$590

$1222.28

2.0716

$69276.09

YR10

117.4171

$590

$1244.62

2.1095

$70520.69

Total

119.5266

N/A

$11499.66

19.5266

$70520.69

Click to enlarge

According to the DRIP Theory, at the end of the 10 year period you would have been paid nearly $11,500 in dividends and have 20% more stock in AAPL. Investors can Google various brokers that provide DRIP accounts. The Buy & Hold investor could very well come out the winner with AAPL.

Disclosure: I am long AAPL.