For those of you long AAPL yesterday, the paltry 6% or so gain on the most impressive numbers that we’ve seen to date from the tech giant were a bit depressing. The fact that every single metric that analysts provided estimates on was completely blown out of the water combined with the $7 drop in share price before the announcement only reinforces the fact that both analysts and the street had no idea how profoundly astounding Apple’s results would be. So why doesn’t the market seem to reflect similar sentiment? One word: Dividends. With over $17 trillion in qualified retirement assets in the market, yes that’s trillion, managers bound by fiduciary duty are desperately seeking a safe-haven for this money where they can earn some sort of return in this volatile yet relatively flat market. Treasuries offer meager yields and are extremely subject to rising rates, junk bonds offer the yield but are off limits due to risk, and non-US stocks trashed a plethora of pension funds numbers last year. So where do we go from here? Just look at the historical data: according to S&P over the last 80 years, 44% of the index’s returns were derived from stock dividends.
Lets look at how this translates into the markets. Take a look at CA inc. for example (ticker: CA). Last night they announced slightly better than expected earnings, certainly nowhere near the beat on expectations that Apple posted, but they also announced a return of 2.5 billion through stock buybacks and… a dividend. Shares soared over %17 in after hours trading. Apple has close to $100 billion sitting on their balance sheets after the $17 billion in profits they added last quarter, just think what would happen to their stock price if a tenth of that was returned to shareholders through a dividend. One thing’s for sure, watch the dividend and the money will follow..