On its face, Apple (AAPL) might not seem like your typical “income stock.”
For one, AAPL’s dividend yield hasn’t eclipsed 2.4% at any point in the past five years. And a long rally in Apple stock has driven its current yield to a mere 1%.
Apple’s revenue stream has long been lumpy and overly dependent on the iPhone upgrade cycle, too. That’s not generally what you want to see in an income stock. Ideally, a dividend holding produces stable and predictable cash flows that come in every quarter like clockwork.
However, given our current low-interest-rate environment, with bond yields not far from all-time lows, dividend investors should keep an open mind when building an income strategy, particularly if you are still a few years away from needing the money.
“Retirement can last years, even decades,” says Gregory Lindberg, a commodity trading advisor based in San Francisco, California. “Focusing solely on current yield at the expense of growth is a recipe for a disappointing retirement.”
Besides, a closer look under the hood reveals that Apple stock might be a better income-oriented portfolio holding than it seems at first glance.
Apple Has Been Defined by Growth
Apple is one of the great growth stories of the past two decades. Since the start of 2006, shares have delivered a total return (price plus dividends) of almost 3,400%. AAPL has more than tripled since 2016, and it has doubled in the past year alone.
It’s extremely unlikely that you would’ve been able to find returns like that in a less risky, higher-yielding dividend stock.
Those kinds of returns can’t last forever, of course.
Apple’s market cap is already $1.4 trillion. Were it to rise by another 3,400%, its market cap would be larger than the current annual GDP of America. The company’s growth rate is slower than it was a few years ago. You could even argue that Apple’s stock price has gotten a little ahead of itself and is due for a correction.
Apple’s growth might moderate more in the years ahead. However, its presence in technology and communications, positioning as a premium brand and its ample cash hoard (which would allow it to make transformative acquisitions, or at the least, buy back large amounts of its own stock) make it likely that AAPL can continue to generate competitive share-price appreciation.
“While the stock has had a massive rally over the past year … we continue to believe this is a must own stock into what we would characterize as a transformational 5G supercycle over the next 12 to 18 months with Apple being our favorite 5G play,” writes Wedbush analyst Dan Ives.
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