Apple: Dissecting Alternative Revenue Drivers

  • Dividend Investments
  • 6 Months ago
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Apple: Dissecting Alternative Revenue Drivers

  • Apple, Inc. continues to rally from its 2016 lows with little to be seen in the way of corrective retracement.
  • Dividend investors looking for additional tech exposure can find stable payouts in AAPL.
  • Coming earnings surprises from alternative sources support the bullish outlook at current levels.

Market valuations in Apple, Inc. (AAPL) continue to trade near record highs, and if you are a dividend investor with a conservative outlook it might seem as though it would be best to exercise patience with any decision to initiate new ‘buy’ positions in the stock.  But when we combine the successes seen in the company’s latest product releases with the potential for outside revenue drivers that were widely unanticipated, that picture starts to brighten.  Many dividend investors lack technology exposure in their portfolio allocations and when we assess the current state of affairs with respect to the potential for Apple to generate significant earnings surprises over the next few quarters, we can see that AAPL remains a viable strategy for capturing yield in the sector.  There is still the potential for additional volatility in the stock as we head into the holiday portions of the year but if you are maintaining a long-term stance in AAPL, the 1.24% payouts are enough to absorb any declines that are likely to unfold.

Broader Stock Trends

When we are dissecting alternative areas for new Apple revenue drivers, we must first look at the company’s recent overseas sales performances.  In the chart above, we can see Apple’s revenue by country/region from Q1 2012 to Q3 2017 in billions of U.S. dollars.  Over the last two quarters, we have seen something of a drop-off from the foreign sales levels seen in Q1 2017 but the broader trends remain encouraging in terms of the company’s ability to attract foreign consumers.  Overall, the averages in these areas are expanding, and one of the key factors likely to impact potential earnings results in the broader value of the U.S. dollar.

Declining U.S. dollar values provide significant advantages to multinational companies with large overseas sales, and Apple, Inc. continues to be a key example likely to benefit.  The effects of changing currency values are seen on a rolling basis and we can expect the Apple earnings impact to be most obvious in the results for the second half of this year.  

In the chart above, we can see that the U.S. dollar has lost nearly 10% of its value year-to-date when compared to a basket of its most heavily traded counterparts.  This will almost certainly lead to upside revenue surprises for the company in the quarters ahead, and recent Federal Reserve commentaries suggest that our low-interest rate environment will not change these currency trends any time soon.

Revenue Data:  Yahoo Finance

Of course, we have seen some volatility in Apple’s revenue performances since 2014.  But when we add the supportive nature of these extensive changes in the value of the U.S. dollar, these factors are likely to stabilize.  We have already seen positives here, as Apple’s reported earnings for the fiscal third-quarter as surprise beats in the number of iPhones sold beat analyst estimates.  Apple’s results surpassed expectations in earnings and revenues, and so there is little reason to believe that we will see significant weakness over the next few quarters.  

Dividend Data:

With the earnings information we already have, AAPL is holding near its all-time highs and this confirms the strong sentiment in the market that is backed by a large majority of what is seen in the analyst consensus surveys.  Dividend investors can find additional value here in the company’s highly encouraging payout ratio, which is currently seen at 28%.  This suggests that Apple’s dividend payout is about as stable as it gets, even though the stock’s dividend growth might not seem incredible at first glance.

From a chart perspective, there is not much supporting the argument that AAPL is an overbought stock.  Studies in the CCI indicator have moved back into the mid-range and the readings are strongly bullish when viewing the activity on the weekly charts.  Valuations are currently caught in an uptrend channel that is proceeding in a stable 45-degree angle and we should continue to find demand at 156.90, which is a prior trading platform resistance level that will now be expected to act as support.  If we do see a break at 156.90, we will then expect a broader retracement back toward 141.80.  This is another historical level and the zone likely to be covered by the lower end of the 2-standard deviation Bollinger Band.  All together, this does nothing to suggest that Apple is trading at overextended levels to the topside even though we are trading in close proximity to the record highs for the stock.


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