Will Apple Become an Income Investor's Dream Stock?

Apple (NASDAQ: AAPL  ) has long been a favorite stock for growth investors. It's not hard to see why Cupertino's top and bottom lines have absolutely exploded over the last decade or so, and the stock was bound to follow suit.

AAPL Chart

AAPL data by YCharts.

But the era of explosive growth appears to be coming to an end. iPhones and iPads are still selling in record numbers and generating record profits, but the upward trajectory isn't quite what growth buyers are looking for these days.

But even if Apple's growth peaked in 2012, the stock could still be a fine vehicle for income investing for years to come.

The 35% share price plunge over the last five months has done wonders for Apple's dividend yield. New investors are treated to a 2.3% yield if they buy in at current prices. Compare this to the measly 1.5% yield you were looking at last summer, when shares traded at all-time highs.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is packed to the rafters with high-quality income plays, as every single one of its 30 components pays a dividend today. These stocks are the cream of the crop, hand-picked for their unique ability to reflect the health of the overall market.

How does Apple's payout compare to this august index? Pretty well, I'd say. The Dow's average yield is a healthy 2.7%. AT&T (NYSE: T  ) offers the richest payout at 5.2%, with telecom rival Verizon's (NYSE: VZ  ) 4.7% yield hot on its heels. Wired and wireless communications services are proven cash-cow businesses, where top-line growth may be limited but companies are happy to share their cash with shareholders.

Ma Bell pays out 38% of its annual free cash flows, and Big Red shares 10% of its incoming cash. Here comes the good news for Apple investors: Cupertino doles out just 9.5% of its incoming free cash in the form of dividends. That may look stingy right now, but it leaves ample room for increases in the future.

Growing dividends are a fine substitute for jumping sales and profits. Even stodgy old no-growth companies can beat the market with a steady cash supply. So long as Apple can stabilize its proven success model for the long term, investors should be plenty happy with their quarterly checks over the next decade.

Interested in Apple?
There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons both to buy and to sell Apple, as well as what opportunities remain for the company (and your portfolio) going forward. To get instant access to his latest thoughts on Apple, simply click here now.


Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2013, at 2:38 PM, EquityBull wrote:

    Pretty risky. Assume repatriation tax never goes away. the 100B offshore becomes worth 65B if brought back. If EPS drops to 30 to 35 per share in the next one to two years of which 80% will be offshore apple will have a difficult time raising its dividend as its onshore cash gets eaten up.

    To provide support apple now needs a 4% to 5% dividend. That means about 20 to 25 per share. At that rate it would pay out all its domestic cash in two years forcing them to take on debt to continue to pay the dividend. Bringing offshore money back would buy them 3 more years after taxes. But after that the payout would be in jeopardy as earnings decline to the 30 dollar level.

    Feels too risky now as tablet share is falling rapidly and Samsung knows the playbook on how to grow in this space. Last quarter they gained 268% to more than 15% share while apple bare is above 50% share. In 2 years this will flip with Samsung owning 50% with cheaper tablets and apple just 15%. Only way apple can counter this share is by sacrificing profit and going low end and we all know they won't do it.

    Without a major new product category ahead to hold margins the future is not so robust for apple. That said apple won't be going bankrupt anytime soon thanks to them hoarding cash and not paying it out in anticipation of burning through it one day whether R&D or to stem cash flow issues.

    Carrier subsidies are now looking more likely to put a squeeze on apple. China Mobile appears to now have the upper hand in negotiations too

  • Report this Comment On February 03, 2013, at 7:22 AM, balij wrote:

    Sentiment of Investor's about apple is reversed in previous months and Now it is really difficult for Apple to gain that confidence back, because despite of Billions of dollars in cash and decent Fundamentals, Things are just not Happening for the Apple. Apple is now coming up with new iPAD but it Needs to focus on a Cheaper IPHONE , otherwise it is looking in Darkness because Market and Apple are running in opposite Directions. Apple in the Darkness article at

    http://wallstnews.blogspot.com/2013/01/apple-in-darkness.htm...

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