The Secret to Superior Long-Term Wealth Creation

What’s a company’s most valuable asset? For most firms, it isn’t its physical property or patents. Instead, it’s something far more difficult to measure.
A brand is frequently the most valuable asset a company owns.
Indeed, the top brands are valued in tens of billions of dollars. In the top echelon of the top brands, value can exceed $100 billion. The market value of one strong brand alone can easily exceed the value of a company’s other assets combined.
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This might seem odd. After all, a brand contributes nothing to physical production.
True enough, but a strong brand produces something more important – customer loyalty. A strong brand has the same effect on customers that the bell had on Pavlov’s dog. The dog reflexively salivated upon hearing the bell; customers reflexively buy upon seeing the brand. When customers are put on automatic pilot, earnings growth is also put on auto pilot.
No company owns a more valuable, more powerful brand than Apple (NASDAQ: AAPL). Brand-management firm Interbrand values the Apple name at $119 billion.
The lofty valuation appears reasonable. Apple simply needs to hint at a new product and the Internet is set abuzz. When the new product is actually released, the Internet blows up. (“Apple Watch” returns 120 million hits on Google.)
In a recent press release, Apple announced, “The response to Apple Watch has surpassed our expectations in every way.” That’s saying something.
Apple’s strong brand and growing reach has generated 29% average annual sales growth over the past 10 years. EPS growth has been even more impressive, averaging 40% annually over the same period.
The power of the Apple brand to drive company growth is impressive. What matters most, though, is how company growth leads to growth in shareholder wealth. The connection is sometimes tenuous.
Though still growing smartly in 2012, Apple shares plateaued and then backpedaled. In a six-month span from late 2012 through early 2013, Apple shares lost 45% of their value.
A strong brand and unrelenting growth were no longer enough. Apple needed to focus more on shareholder value. There is no better way to drive shareholder value than returning excess cash to shareholders.
Apple responded to a flagging share price by initiating a dividend. In 2012, Apple paid $2.5 billion in dividends to shareholders. In 2013, it upped the payout to $10.6 billion. The figure was pumped up further to $11.1 billion in 2014.
On a per-share calculation, Apple paid $0.38 in dividends in 2012. In 2014, it paid $1.81 per share. Apple currently pays $2.05 per share in dividends.
Apple returned even more cash through share buybacks (which help drive per-share earnings and per-share dividend growth). In 2013, Apple initiated a share buyback program and spent $22.9 billion on its shares. The following year it spent $45 billion. Apple recently authorized $140 billion in share buybacks through March 2017.
The return-cash-to-shareholders initiative has worked. After bottoming at $55 a share in 2013, Apple shares have appreciated 180% since. Discover more stocks – just like Apple – that are generously rewarding shareholders. Click here now.
It’s all a virtuous circle really: The strong brand drives revenue and earnings growth, which, in turn, drives shareholder value through dividend growth and per-share price appreciation.
It’s also a perpetual circle that continually expands. The strong brand drives growth; the growth drives wealth, creating initiatives like dividend growth and share buybacks. Apple has proved this thesis over the past few years. Companies like Coca-Cola (NYSE: KO) and Procter & Gamble (NYSE: PG) have proved it over the past few decades.
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