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Tuesday June 05, 2012
iRetirement: A safer way to play Apple?
by Brian Hicks, editor Wealth Advisory  Apple (AAPL) is the greatest cash-generating company the world has ever seen. In just its last quarter, Apple's cash pile grew from $98 billion to $110 billion. And it could add another $40 or $50 billion to that cash by the time we're ringing in 2013. Meanwhile, sometime in its fourth quarter, which starts July 1, Apple will reward shareholders with the first quarterly installment of its $2.65 annual dividend. Apple acknowledged that part of the reason for paying a dividend is to attract retirement investors, including institutional investors who manage income and retirement portfolios. The question is: Is Apple a good stock for individual investors planning who are actively involved in their own retirement planning? Given the rate at which Apple is growing its earnings and cash position -- combined with the attractive valuation (forward P/E of 10) -- it's tough to argue that there isn't upside for both the stock price and the dividend. But Apple has two things that keep it from being the perfect retirement stock: a $550 share price and a sub-2% dividend. So we got busy investigating the best ways that individual investors can use Apple to help fund their retirement. And we've found an investment that's heavily leveraged to Apple Computers, pays 9.3%, and has as much as 10% annual upside. In other words, it's such a perfect way to use Apple stock for market-beating returns, we've dubbed this investment (and a few like it) "the iRetirement Plan." The Nuveen Equity Premium Advantage (JLA) is closed-end fund that's nearly 12% invested in Apple -- the highest of any fund we've been able to uncover. JLA also pays a 9.5% dividend, and trades at a discount to net asset value (NAV) of 11.5%. In addition, management fees are under 1%, which is very good for a closed-end fund with such an attractive dividend. The Nuveen Equity Premium Advantage Fund is an equity option fund. That means it sells call options to boost its performance, raise cash for dividend payments, and create a measure of downside protection. The fund's secondary objective is capital appreciation of the stocks it holds. Now, we expect that individual investors may have reservations about investing in a fund that uses call options to generate income. Investors should understand that selling call options is a conservative income strategy. For the last three years, the Nuveen Equity Premium Advantage Fund has averaged 15.5% gains, while the NAV has risen just 13%. Now, it's not unreasonable to think that you might get +20% a year from Apple for the next few years. After all, it's growing earnings at a much faster rate than that. The point is for retirement savings, the reliable income and stable share price make the Nuveen Equity Premium Advantage Fund a better option. Investors will see the share price rise as Apple's stock price rises. And the fact that the fund generates income with call options means it is less vulnerable to stock market corrections. Over the last few weeks, Apple shares have fallen around 15%. But the Nuveen Equity Premium Advantage Fund has performed much better -- down just 2%. Once Apple starts paying a dividend, that will increase the cash flow to the Nuveen Equity Premium Advantage Fund. It would be reasonable to expect the fund to pass the added income on to shareholders. So the current 9.5% dividend could quickly become 10.5% or even 11%. We rate the Nuveen Equity Premium Advantage Fund a strong buy under $12 a share. We believe it represenst an excellent way for you to collect market-beating dividends and maintain exposure to Apple common stock. Learn more about this financial newsletter at Brian Hicks' Wealth Advisory. Related articles: 
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