Apple Stock Reaches a Milestone

Apple Stock

Apple stock reached a symbolic milestone last week as the total value of all the company’s stock—its “market capitalization”—surpassed $700 billion for the first time. Some analysts are now speculating that the company could grow to become worth over $1 trillion. These numbers are gaudy, and they reflect the fact that Apple’s business has been booming. But they may distract from what Apple shareholders should really focus on, which is the stock’s total return.

“Total return” refers to the combination of the change in the price of an investment and other payments made to investors, such as dividends. This concept reflects how an investment actually affects the value of an investor’s portfolio.

A bigger market capitalization can be associated with a higher total return, but that’s not always the case. When a company pays a dividend to its shareholders, for example, the company’s market capitalization decreases (because the company now has less cash), but the total return does not (because investors have received the cash).

Since it reintroduced its quarterly dividend in 2012, Apple has been paying its shareholders more than $10 billion a year in dividends (it’s spent an even greater amount buying back its own stock, another way of returning money to shareholders). Each dividend payment lowers the total value of the company’s stock, making it slightly harder for the company to reach a new market capitalization record.

But the dividends are arguably very good for shareholders. Even after the tens of billions of dollars in dividends and buybacks, Apple still has more than $150 billion in cash and other assets that it could easily convert to cash. This large amount of cash suggests that Apple may be having trouble finding profitable ways to deploy its money, and that more dividends and buybacks may be better for Apple’s shareholders than simply watching the cash pile continue to grow. Investors cheering for Apple stock to achieve new market capitalization milestones should keep that in mind.

Topics: Blog Dividends Apple