Apple Inc. (AAPL): Compared to These Cash Cows, It’s a Bargain

With a dividend boost likely just around the corner, Apple Inc. (NASDAQ:AAPL)‘s valuation just doesn’t make sense. I recently highlighted Apple as one of two stocks to buy in April. In this article, I’ll take the analysis further, comparing Apple to other blue-chip cash cows.

Judgment day
Yes, the market is an untamed and unpredictable beast… in the short term. But in the long term, price typically follows the value of an underlying business — especially when the company commits to a significant dividend. In other words, a high enough boost in Apple Inc. (NASDAQ:AAPL)’s dividend will finally persuade the market to acknowledge the company’s ability to turn products into mountains of cash.

One analyst estimates that Apple Inc. (NASDAQ:AAPL) could easily afford to boost its annual dividend to $15 to $20 per share. At today’s price, Apple’s dividend yield would amount to 3.5% to 4.6% at these payouts. These days, 4% dividend yields are hard to come by — especially among cash cows (as we’ll see below). If Apple announces a payout that amounts to a dividend yield greater than 4%, there is a good chance the stock would rise as investors buy up shares to take advantage of the high yield.

Comparatively, Apple is a bargain
Based solely on fundamentals, Apple Inc. (NASDAQ:AAPL) is a steal — especially when compared to these blue chip stocks.

McDonald’s Corporation (NYSE:MCD) is a great, consistent company. It has generated steady free cash flow ranging from $3 billion to $4 billion for the last five years. Its scale advantages are unrivaled among restaurant operators. But the company faces some challenges, too. The quick-service industry tends to be highly competitive, and its history is littered with price wars.

MCD Dividend Yield data by YCharts.

Apple Inc. (NASDAQ:AAPL) is cheaper than McDonald’s in terms of its dividend yield, but that could change very soon. With regard to Apple’s free cash flow yield, or free cash flow divided by price, Apple is far cheaper than McDonald’s, with a free cash flow yield of 11.4% compared to McDonald’s 3.85% yield.

Wal-Mart Stores, Inc. (NYSE:WMT)‘s low-price strategy has produced reliable cash for the company for years. The company’s free cash flow ranged from $10.7 billion to $14.1 billion over the last five years. As it continues to reinforce its everyday-low-price model, the company is proving that price still matters. But challenges are mounting. Competitors Costco Wholesale Corporation (NASDAQ:COST) and Amazon.com, Inc. (NASDAQ:AMZN) both have lower fixed-asset bases and operate on minuscule operating margins.