As Apple Inc. (AAPL) announces that it will be paying a dividend of $2.65 per quarter starting in July 2012, we wondered what Edson Gould’s Altimeter would look like if it were applied to AAPL after 1995, when AAPL eliminated their quarterly dividend. We want to see how Gould’s Altimeter would react to Apple Inc. if the dividend were increased every year from 1996 to the present with the assumption that the 2013 annual dividend would be $10.60 per share.
The Altimeter was first described by Edson Gould in Barron's on February 21, 1968. Gould asserted that the relationship between the price and the dividends paid on that stock, or index, tell investors of under or overvaluation. It is important to make the distinction between Edson Gould’s Altimeter analysis and his Speed Resistance Line [SRL] analysis. Altimeters are based on the dividend payment relative to the stock price while the SRL is based strictly on the price movement.
In the case of Apple Inc. (AAPL), there hasn’t been a dividend paid since 1995. To arrive at a dividend payment from 1996 to today, we calculated a gradual annual dividend increase as would be the case with any blue chip stock like a Dividend Achiever. Dividend Achievers are stocks that have increased their dividend every year for 10 consecutive years in a row.
We're running on the assumption that the July 2012 $2.65 quarterly dividend would be the latest increase in a long string of dividend increases since 1996. Below is the assumed dividend increases from 1996 to the present:
| Year | Annual | Quarterly |
| 1996 | $0.52 | $0.13 |
| 1997 | $1.13 | $0.28 |
| 1998 | $1.76 | $0.44 |
| 1999 | $2.40 | $0.60 |
| 2000 | $3.00 | $0.75 |
| 2001 | $3.64 | $0.91 |
| 2002 | $4.42 | $1.11 |
| 2003 | $4.88 | $1.22 |
| 2004 | $5.52 | $1.38 |
| 2005 | $6.14 | $1.54 |
| 2006 | $6.76 | $1.69 |
| 2007 | $7.40 | $1.85 |
| 2008 | $8.02 | $2.01 |
| 2009 | $8.64 | $2.16 |
| 2010 | $9.28 | $2.32 |
| 2011 | $9.89 | $2.47 |
| 2012 | $10.48 | $2.62 |
| 2013 | $10.60 | $2.65 |
Based on the proposed annual dividend increases, we can now view what Edson Gould’s Altimeter would look like for Apple Inc. (AAPL) stock. Below is the Altimeter from 1996 to the present.
The first thing that is noticed, in the chart above, is the fact that from 1996 to 2007, Apple traded in a range of between 50 and 17 on the Altimeter (Altimeter level; not stock price). Anytime AAPL was trading near 50 the stock was overvalued and when the stock traded around the 17 range the stock was considered undervalued.
However, the low of 2003 marked the beginning of a new relationship between Apple’s stock price and our hypothetical dividend that would have been received. Starting in 2006, AAPL’s stock would decline, at minimum, to the previous Altimeter peak. The decline from the 2006 peak stopped exactly at the 2005 peak. The decline from the 2007 peak initially flirted with the 2006 peak but ultimately succumbed to the forces in play and fell well below the 2006 peak.
Our take on this “pattern,” based on hypothetical dividend increases every year from 1996 to the present, is that the next support level for Apple’s stock price would be at the 2007 peak, at minimum. This suggests that APPL’s stock price could decline to $284.98. Such a decline would constitute a –52.59% drop from the closing price of $601.10 on March 19, 2012. Although the $284.98 level seems dismal, it is a far cry better than Edson Gould’s Speed Resistance Line [SRL] analysis which suggests that the extreme downside target is $201.66. This is an increase from the February 5, 2012 downside [SRL] analysis done on Apple (found here).
The channel that BOH has managed to fluctuate within suggests that the stock is overvalued at the high end and undervalued at the low end. The period of extreme overvaluation is reflected in 2003 and started to move in a declining trend to undervaluation when BOH increased the dividend from $0.19 to $0.30.
In the first chart, you can see that after 2004 WMT fell to an extreme level of undervaluation. The reason this occur is because WMT continued in increase the dividend at a high rate even though the company didn't have the earnings to support such increases. With diminished earnings, WMT issued more shares to raise capital to fund the dividend payments at the expense of per share earnings.