Apple Dividend Stock Analysis
With all the recent talk about Millionaires here at Dividends Diversify, I haven’t done a dividend stock analysis in a while. Here’s one company that has created a lot of new millionaires over recent years.
A few weeks ago I did a review of companies in the technology sector. The article pointed out their gigantic cash holdings. In addition, I questioned if the new 2017 tax law might result in larger dividend increases from companies in the sector.
Apple was one of 5 cash rich technology companies highlighted in the article. With first quarter earnings in the books and an Apple dividend increase recently announced, let’s take a closer look at this well known tech company. So, please join me for a dividend deep dive.
COMPANY BACKGROUND
Headquartered in Cupertino, California, Apple designs, manufactures and markets mobile communication devices, media devices and personal computers. In addition, they sell a variety of related software, services, accessories, networking solutions and third-party digital content and applications.
The company’s hardware products include the:
- iPhone smart phone
- iPad tablet computer
- Mac personal computer
- Apple Watch
- Apple TV
Apple’s software includes:
- macOS, iOS, watchOS and tvOS operating systems
- iCloud
- Apple Pay
Digital content and services are composed of the:
- Apple Music
- iTunes Store
- App Store
- Mac App Store
- TV App Store
- iBooks Store
APPLE DIVIDEND YIELD
Apple is paying an annualized forward dividend of $2.92 cents per share. This represents a 1.56% yield at the recent price of $188 per share.
COMPOUND ANNUAL DIVIDEND GROWTH RATE
| 1 Year | 3 Years | 4 Years |
| 10.31% | 10.04% | 9.91% |
The current Apple dividend was initiated in mid-2012. During that year they started paying a regular quarterly dividend and have continued to do so ever since. Prior to that, the company had not paid a dividend to its shareholders since 1995.
On May 1, management announced a 15.9% increase to the Apple dividend starting with this months quarterly pay out. The new increase is clearly a break from trend. As the compound annual dividend growth rate table shows, Apple has annually raised the dividend about 10%.
REVENUE
Apple’s revenue peaked in 2015 at $234 billion. During 2016, as revenue declined there were concerns about the future revenue generating capacity of the company.
At the time, iPhone accounted for a very large portion of the company’s revenue and profit. The smart phone market was maturing. Competition was catching up. In addition, customers upgraded their phones less frequently. This was mainly due to the annual changes from phone to phone becoming less dramatic. As sales slumped, so did the stock price. It made it’s most recent bottom of $90 per share in May 2016.
Since then, the stock has never looked back. It has doubled in value in less than 2 years. The company has gone through a fundamental transformation. They have turned a business centered on how many devices it ships into one built around high-end features and services for those devices.
The quarter ending March 2018 revenue clocked in at a little over $61 billion. This represents the highest March quarter revenue in company history!
APPLE DIVIDEND, EARNINGS AND PAYOUT RATIO
From a 2018 earnings perspective, analysts project greater than 20% growth. Consequently, 2018 is setting up to be a record year.
The 2018 projected dividend payout ratio will be about 24%. This is slightly lower than the past several years. A lower dividend payout ratio is a positive metric. It shows the company has ample room to raise the dividend in coming years. Or, withstand an earnings drop with out having to reduce the dividend.
VALUATION & CONCLUSION
The stock price has already reflected the anticipated growth in 2018 earnings. This leaves the forward price to earnings ratio for 2018 at about 14 times. At this level the stock is trading near the mid point of its recent historical range.
WRAPPING IT UP
Apple isn’t your father’s dividend growth stock. It doesn’t operate in your traditional steady demand industry like consumer staples or utilities. The company’s growth is partly dependent on managing short product life cycles. In addition, continual and consistent product and service innovation is an ongoing requirement.
I have a moderate size position in Apple at a cost basis of $85 per share. I intend to hold and would only consider buying at a price below $120 per share. This would equate to a 2.4% dividend yield. I will let this winner ride and put my money elsewhere for now. There are many other good dividend paying stocks at reasonable prices in the market right now for me to consider adding to Apple.
Hypothetically speaking, if I did not already own Apple, I would consider initiating a position below $145 per share.
OTHER RELATED ARTICLES
I hope you liked this post. If so, here are a couple others that you may find interesting:
- The process I use for dividend stock analysis: Dividend Deep Dive
- Another tech sector deep dive: IBM
- The technology sector review from earlier this year: Tech, Where Cash is King
- The Dividends Diversify model portfolio where Apple resides: Dividends Deluxe
- I don’t get all my stock picks right like Apple. Check out what I learned by investing in General Electric
WHAT ARE YOUR COMMENTS?
- Do you own Apple?
- Are their other risks or opportunities with their business I haven’t considered?
- Do you use and like Apple products?
Leave a comment and let us all know!
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Disclosure & Disclaimer
As of this writing, I am long Apple. Always remember that the information on this site is for educational and entertainment purposes only. The information is not to be used as investment advice specific to your circumstances. Consult your personal investment and/or tax advisers prior to investing money. Please realize you are solely responsible for any investment gains or losses as a result of the investments you enter into. You can find additional information under this site’s disclaimer tab: Disclaimer & Privacy Policy.
Tom, that’s a very professional analysis.. You could run a good consulting firm, if interested.
I don’t own a single stock. I’m an investor on the index funds only, kind of easy and low maintenance way. I have not bought any Apply products, way behind the trend.
Hi Helen,
Thanks for the kind words. Index funds are a good way to go. I have plenty of readers here that primarily choose that path. VYM is my favorite dividend stock ETF. Tom
Hi Tom, fellow Apple shareholder here. Big fan of the products too, iPhone and iMac I’m typing to you now on. I didn’t get in at a low price like you did but it was around the $120 mark I believe.
I’m a believer in their services and reoccurring revenue resulting from it. I think the analysts underestimate that.
Great job, enjoyed it.
Thanks Mr. DS. Always appreciate your perspective on the tech stocks given your professional experience in that field. Looks like you are sitting on a nice capital gain and collecting your dividends while you watch the stock price go higher. Tom
Hey Tom,
I do own some Apple, as part of sector-focused investments I have.
I’m a bit ambivalent about Apple. I think their products are generally very high-quality, and I switched from Android to Apple phones years ago (and don’t want to switch back). They’re user-friendly and “just work”.
On the other hand, the iPhone X is looking like a flop and, at least in my eyes, I haven’t seen a huge new innovation like the original iPhone or iPad come out for a long time. Might it be slowly switching into the reliable, steady lane of Microsoft?
Cheers,
Miguel
Interesting thoughts Miguel. On the X, I have read that it is commanding a premium price and therefore helping both revenue growth and profitability even though unit shipments are not as high as earlier iPhone releases. I still use an iPhone 7 so I don’t have personal knowledge of the product. If you are correct and they are heading to be a slower and steady performer like Microsoft, I think their services segment will have to grow and pick up more and more of the slack from declining device sales. Tom
Well said (as usual Tom).
I don’t own any individual shares of Apple – however I do own it via a few index funds.
Aside from an Ipod, I’ve never used any Apple products, but I have a lot of friends who are extremely loyal fanboys….If I didn’t own any funds or liquidated and bought 100% stocks -i’d probably pick some up, but am happy keeping my US/International exposure in index funds.
Keep up the great work!
Thanks for the honest assessment and kind words Jordan! Like you, I get most of my international (non-US) exposure through funds too. It is good that you have a well thought out strategy for international investing and that you stick to it. Tom
Good analysis Tom.
I own AAPL in my IRA account and my cost basis is around $125. It’s a buy a and forget type of stock for me and more of a growth stock than dividend income stock and why I have it in my IRA.
Thanks Mr. ATM. I thought you might be more concerned about the company’s exposure to competition and technological obsolescence? Tom
No, not with AAPL. They got some of the best engineering minds and continue to show they can grow and innovate in post Jobs era. Besides, who wouldn’t want to own a piece of this first trillion dollar company in making?
BTW, I stupidly did sell some AAPL few years back in my taxable account because I wasn’t happy with the dividend, my cost basis at the time was $95.
I knew you had a good reason Mr. ATM, which is why I asked. Glad Apple has your seal of approval. Tom
I never pulled the trigger on Apple because there were other dividend-paying options available. I. should have looked closer when they were below $100/share. I use Apple products, but that’s not to say I’m using the best technology right now with an ancient generation phone.
Too funny HP. Just last year I finally upgraded my iPhone 4 (one of the first to come out) from 2010 to an iPhone 7. The 4 became so slow it was virtually worthless. I do understand on the yield. It’s so hard to pull the trigger on sub 2% yields when quality companies pay 3-5%. I bought Apple mainly for a diversification play. I like to have some tech in my dividend stock portfolio. I would never have purchased if they had not instituted a recurring dividend payment policy. Tom
Apple, the marketing company that also sells tech products. And they market the best. In a world where cash is king, they are an excellent choice for an investment. With more than enough cash on hand to cover their dividend, and bringing more cash back from overseas. The yield is lower than most, but the growth rate is very high with no sign of slowing down. Lucky for the investors who bought a few shares before they split their stock 3 times in 6 or 7 years. Wish I owned them, but haven’t gotten around to it yet.
Thanks for your thoughts Daze. If I remember correctly. you work in the tech field??? Always appreciate the views from those inside the industry. Keep Apple on your watch list. Maybe it will go on sale one of these “daze” Tom
Hey Tom. Another excellent post. I bought Apple in 2012 (it was one of the first stocks I purchased), and added to my position a couple of times. My current cost per share is about $92, and overall it is up over 100 percent.
I didn’t originally buy it for the dividend (I didn’t really start focusing on dividends until a few years ago), but the dividend has been steadily increasing, and as you point out, there is lots of room for growth. It’s a keeper for me as part of my dividend portfolio in the near term.
Given the way technology changes so rapidly these days, and given Apple’s history, I’m not sure about the stock long term. I will keep a close eye on their stock price and try to keep up on their financials.
Interesting how we have had a couple similar experiences FIREman. Both of us got torched by GE and both of us have had nice success with Apple. Can’t get them all right, but hopefully we get most of them right. I’m sure Apple has made some people very wealthy that make my modest position and gains look like small potatoes. Tom
Great analysis Tom! I don’t have individual shares but have it through my ETFs. If Warren Buffett loaded up, it’s a good time to buy Apple lol.
I recently watched the movie Steve Jobs (the one with Michael Fassbender) and it was so good!
Thanks for the tip on the movie GYM. I will have to check it out. Jobs was a really interesting character to me. Especially having the vision to stick with Apple through the early years before it became such a success. Tom
Yes, I didn’t know that he denied his first born child (he said she wasn’t his child for years). Very interesting character. I would love to read Steve Jobs biography, it’s on the long list of books to read!
GYM, I didn’t know that either. It sounds bizarre. Tom
Great analysis here, Tom!
I love Apple products! I support them all the way!!! I used to own Samsung products and they’re good…. Pretty good but I just LOVE Apple’s looks in general. They’re beautiful, trendy and user friendly. Not techies’ fave but considering most people aren’t tech savvy, Apple does a great job lol! I’ll be honest that they need to step up in the game of becoming more innovative — I do have concerns on that.
I still hold onto Apples’ shares since 2014 ish I think it was and never really thought about selling. It’s one of my forever holds as far as I know lol.
P.S. I love the feature image that you used for this post. It’s pink!!! ❤️
Hi Ms. Panda. I liked that image too. The color really pops out. Thanks for your thoughts on Apple. I like your millennial view point on their products. You all grew up with tech starting at a young age and have a unique and important perspective. Tom
I do not own any Apple directly. I like buying individual stocks, but I generally stay away from technology stocks. One of my index funds does have Apple in it, so I guess you could say I own some shares. I guess I just do not feel that comfortable with those types of stocks because I do not keep up with that sector. However, I really enjoyed your post.
Thanks OPP. Glad you liked it. Best to stick with what you know when it comes to investing. If you don’t follow a sector, best to avoid it. Tom
Of course I own Apple, Tom! I have index funds!!! Looks like Apple comprises about 3-4% of a typical S&P indexer, depending on the day you look.
Big fan of Apple, but I’m not blinded by their failings. We still have a generation 3 iPAD and I’m convinced they slow these things down intentionally to compel you to upgrade. Bastards.
Hi Mr. Cubert. You are so right. Any good index investor owns a big chunk of Apple since they have the largest market capitalization in the US. Tom
I’ve owned Apple for a long time now. I bought it as a growth stock (which it has done well). The dividend is definitely a bonus. The company charges a premium for their products but the quality, in my opinion, is worth it. I’ve had other electronics and none have served as well overall as Apple. With all that cash though, one does wonder what their long-term plans are.
Good products and lots of cash. We shall see as you say SMM. Tom
This company (and its share price) never ceases to amaze me. I’d never have bought this over the past few years as I always struggle to visualize how such big companies like this can keep growing, but it’s obviously continuing to do something pretty special.
Given your comment on the short product life cycles of their products I just wonder how long it can keep this magic up?
Hey Frankie. Yes. I think your concern is reflected in the PE ratio. It is always very low on a relative basis for such a successful and profitable company. Tom
I’m a big fan of Apple. My phone is an iphone and I generally like Apple products. One of the things that drew my attention to apple was their 7 for 1 stock split they had in 2014. I wish I owned the stock before that time, but alas, I didn’t. Now, Apple is in my portfolio, and I plan to keep holding it, hopefully through the next stock split. I just wish the yield was higher.
Hi DP, The low yield does give us dividend investors pause. But like you, I’m glad I have bought and held. Tom
Good analysis, Tom. My original cost basis was < $85, my current is $115.19 (used them as a tax-loss harvesting counter-party a few years ago). My only concern is whether the premium they command on products would be sustainable during the next economic downturn. But the services side may be an offset in that scenario. (No – I don't use Apple products).
Thanks SR. Sounds like Apple has treated you well too. And agree, their new phones are expensive. I have had an iPhone 7 for a year and hope it last me a good while longer. Tom
Another excellent deep dive. Thank you for sharing this.
I haven’t bought any Apple stock yet. We do own some of their products but that’s about it. I did read the autobiography of Jobs and thought it was a pretty good insight into the man he really was with al his flaws.
Not a particularly nice person but one with a definite vision which brought the company to where it is now.
Maybe I’ll pull the trigger in a dip somewhere in the future, who knows?
Hey Mr. Robot. I bet the Jobs book was pretty good. I little pricey here to initiate into Apple in my opinion, but as you say have it on your watch list in case it goes on sale. Tom
Apple was my largest stock now it’s my second. I don’t mind the low yield as long as they keep raising the dividend like they have. It could be my largest dividend payer in 10 years even if I don’t add another share. If not it will be close
Hi Doug, Curious now on what your largest stock is? Never the less, congrats on making Apple one of your largest holdings. I’m with you and will be very satisfied to hold for the long term as long as the dividend grows nicely in the coming years. Tom
Hey Tom. I don’t own AAPL directly. I’ve looked at it many times for possible investment, but never took the plunge. I don’t mind the lower yield as long as the growth is there, but how much bigger can the company get as it approaches $1T market cap? If only I knew the answer!
Well yes. Agree ED, the bigger any company gets the harder it is to keep growing at historical rates. And with Apple being the biggest of all by market cap, they have a big challenge ahead. Like you, I can’t pretend to have the answer. Tom
AAPL is definitely a good stock to own. Although I don’t own any Apple products … I have heard raving reviews. I see it as a dividend machine. In terms of growth … Do they have any revolutionary products in pipeline? I see incremental improvements. For growth I would stick to Amazon.
Interesting thoughts DG. I only own dividend payers, so Amazon is off the table for me right now. They have been a growth machine, however, and it’s nice to see them finally turn a profit the last couple years. Tom