Apple (NASDAQ:AAPL) stock has benefitted greatly over the past seven years from its massive share repurchase program. This past year alone, management has bought back more than 6.6% of outstanding shares of AAPL stock.

In fact, over the past seven years, shares outstanding have been pared by more than 5.4% annually on average. In total, Tim Cook and company have taken out almost a third of Apple’s shares from trading.

This can be seen in the chart below, which tracks the historical reduction of each quarter’s shares outstanding in millions.

The start of the downward red line dates from September 2013, when Apple started on its large buyback program.

This means that annually the supply of shares outstanding is cut by 5.4%. As you know from Economics 101, less supply plus stable-to-higher demand leads to a higher price.

The effect of the share buybacks is relentless. In the fiscal year ending September, shares outstanding fell by 6.6%. In the prior year, they fell 7.2%, and so on.

You can see the annual history of the buybacks in the table on the right.

Effects of Huge Buybacks on Apple Stock

The first thing that the buybacks do is increase earnings per share. Since there are fewer shares outstanding, net income divided by shares rises faster than it otherwise would.

The next important effect is on dividends. For example, it allows Apple to pay more dividends per share for the same amount of dividends paid out.

You can see this on the table at the right. It shows that the dividends paid in the past seven years have increased by a third.

But during the same period, the dividends per share have risen by 84%.

That means that dividends paid to shareholders on a per-share basis have risen twice as fast as the dividend dollar amounts paid by the company.

Dividends per Share Growth Fuels AAPL Stock Rise

The only reason for this is because the share count has fallen by a third over that same period. In other words, both sides benefit. They can raise the dividend per share for each shareholder over twice as fast as the amount that is paid out.

Why does that matter? It helps Apple stock rise faster. That’s because, for the same dividend yield, the price must rise if the dividend per share rises.

In fact, there may be a tendency for the dividend yield will tend to fall. That is because there may be more demand for Apple stock as the dividend per share rises.

For example, this means on average the Apple dividend per share has risen 9.2% annually on a cumulative basis. Dividend payments have only risen 4.2% annually.

Valuing the Buyback Program

What is Apple stock worth based on its buybacks, dividend growth and yield?

First, let’s assume that in three years the dividend per share has been increased by 9.1% annually. Remember this is average annual increase in dividends per share over the past seven years. This is based on its share buyback program.

Next, let’s assume that the dividends per share in three years will be $4.00 per share. That is because the present dividend per share of $3.08 compounded by 9.1% annually for three years is equal to $4.00 per share.

Finally, let’s assume that the dividend yield stays at roughly 1%,  where it is today. Therefore, we can value Apple shares in three years. Take $4.00 per share in dividends and divide it by 1.0%.

That means Apple stock will be worth $400 per share. The upside is about $100 per share over three years, or 33%.

Now on a present value basis, at a 5% annual discount rate, the net present value for Apple stock is $345.54 per share. So Apple stock is worth 15% more today.

Apple Stock is a Buy

My calculation shows that Apple stock is still a buy despite its huge run-up during 2019. I am not the only one who thinks this.

JPMorgan analyst Samik Chatterjee, just came out with a report indicating that there is long-term upside potential for Apple stock. He cites the higher percentages of revenue coming from Services and 5G iPhones coming next fall. Like everyone else, he also cites the increasing contribution from wearables.

My point is that’s not that hard to continue to be bullish on AAPL stock. I provided one somewhat overlooked reason — Apple’s buybacks and the effects on dividends per share.

Based on that, I believe Apple stock is worth at least $345.54 per share today, or 15% higher.

As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.