1 Great Dividend You Can Buy Right Now? Apple.

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Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low, it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week's selection.

This week, I'm going to highlight technological powerhouse and former largest company in the world, Apple (NASDAQ: AAPL  ) .

One bad Apple spoiled the bunch?
We could probably debate from here until next week what's wrong with Apple over the past couple of months. For time's sake, I'm not going to do that. What I will do is point out the fact that Apple's iPhone sales are slowing on a year-over-year basis as Samsung and other manufacturers running on Google's (NASDAQ: GOOGL  )  Android-based operating system give Apple's operating system a run for its money. In particular, the Samsung Galaxy S III, which offers a bigger screen and file-sharing capabilities with a touch, are slowing sales of the still highly coveted mobile device.

Competition in tablets is another area where Apple isn't losing the war, but it's needed to share its slice of the pie. (NASDAQ: AMZN  ) has a fully Internet-capable tablet in the Kindle Fire that also provides the convenience of downloading books from its massive content library. Most notable about the Kindle Fire is that its new 8.9-inch model is priced at just $299. Compare that to the newest generation iPad, which almost always goes for $429 or more for the base model.

All this together, along with the simple fact that Apple didn't stomp its usually conservative guidance into oblivion in the holiday quarter, was enough to throttle the share price. Short-term concerns and emotional trading aside, Apple is about as cheap as it's been in a decade on an earnings basis and looks like one of the stronger buys in the market.

Emotions got the better of you?
To begin with, Apple's smartphone sales are just fine and its market saturation in emerging markets and BRIC countries like Russia is still at a minimum, leaving plenty of room for growth. In that "monstrously bad" first-quarter, Apple delivered a record 47.8 million phones from 37 million in the year-ago period.

Furthermore, in the fourth quarter, Apple was the only smartphone platform that gained market share, rising from 34.3% to 37.8%, according to comScore. Google's Android devices lost 1.3% to 52.3%, BlackBerry (NASDAQ: BBRY  ) shed 1.9% to 5.9%, and Microsoft, whose operating system is found on the Nokia (NYSE: NOK  ) Lumia, dipped 0.1% to 3.1%. Part of this is a direct reflection of the multiple failures of BlackBerry and Nokia to meet consumers' wants and needs in a timely fashion. The Nokia Lumia was a long-delayed work in progress with the company abandoning its in-house Symbian operating system for Microsoft's Windows OS, ultimately delaying its launch. Even worse is BlackBerry, which has suffered multiple launch delays and isn't expected to roll out its BlackBerry Q10 (with its famed keyboard) until sometime in mid-May to mid-June. As Apple's competitors falter, it's picking up market share.

Criticism that Apple's innovation engine has stalled are also grotesquely overstated. Just this year alone, Apple is expected to spend approximately $10 billion in capital expenditures -- $1 billion in its stores and another $9 billion on equipment in a variety of other areas -- which is up $2 billion from the previous year, according to Apple Insider. Apple is continuing to modernize the iPhone and iPad and is working its way into other forms of digital and streaming content via Apple TV and Apple Radio. When push comes to shove, you'll find plenty of people still clamoring to get their hands on Apple's latest devices.

Another reason to buy Apple is its sheer financial dominance. There are few other companies you can invest in that boast $137 billion in cash, are capable of producing well in excess of $40 billion in annual free cash flow, or that are valued at just 8.5 times forward earnings with a growth rate exceeding 16%. Apple's stores are also tops among retailers when it comes to sales-per-square foot... by a mile!

Say hello to shareholder incentives
However, the real allure of Apple, beyond what I've mentioned above, is the simple fact that it's begun giving back to shareholders. Last year, Apple announced it would be repurchasing $10 billion worth of its own shares . Although that's but a pittance of Apple's outstanding shares, it nonetheless represents a commitment on CEO Tim Cook's part to improve shareholder value.

The real bonus came in the form of a $2.65 per-quarter dividend. Apple's dividend, which is currently yielding 2.5%, only amounts to a payout ratio of 24% based on this year's projected EPS, and leaves plenty of room for future growth. At the rate Apple has been cashing in on iPhone and iPad sales, it seems only logical that this dividend is likely to head even higher.

Foolish roundup
We've clearly heard both sides of the argument on Apple many times over, but when all is said and done, Apple makes money – a lot of money – and that's ultimately good news for shareholders. Apple's cash flow and cash balance are unrivaled in the tech world; its innovative capacity far understated and underappreciated; and its dividend is merely the icing on the cake. This is a dividend-paying company you can buy with confidence.

Is Apple the best deal in the tech space?
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. 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 both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (21) | Recommend This Article (16)

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 March 08, 2013, at 10:24 PM, tychicum wrote:

    What is interesting is the pattern of Apple hate spread over the internet starting in the fall of 2012.

    It worked.

    The campaign seems to be running out of steam now ...

    But it was really weird ... like it was coming from just about everywhere. From some it sounded like anti-Americanism. From pundits in finance it sounded like lake of faith in Tim Cook, declining profits regardless of the plain numbers. And from pundits in tech it sounded like Apple had run completely out of ideas. They most likely wouldn't come up with anything else because Steve Jobs died.

    Like a perfect storm.

  • Report this Comment On March 08, 2013, at 10:42 PM, janhrdina wrote:

    Isn't the payout ratio 12%, not 24%?

  • Report this Comment On March 08, 2013, at 11:16 PM, Oril wrote:

    So with an annual dividend of approx $10.60 a share you should be able to regain the losses you have suffered over the past six months in about twenty five years.

    Or you apple loving blackberry hating fools can wake up and smell the roses. Admit you screwed up and take your losses. Invest what you have left in blackberry and you will be richly rewarded. Within two to three years blackberry will surpass apple and will likely be paying a dividend as well.

    Oh one more thing you forgot to mention, Z10 will be rolled out to business customers starting on Monday and to the general public within a couple of weeks.

  • Report this Comment On March 08, 2013, at 11:17 PM, desertracer1 wrote:

    I was really under the impression, from what I had read lately, that the cash hoard is considerable less and much of that is located outside the United States and just a little difficult to get back into this Country without paying substantial penalty tax.

  • Report this Comment On March 08, 2013, at 11:23 PM, thunderboltnova wrote:

    Thanks! I just bought 200 shares on margin. Why get an extension ladder to pick apples when these are laying on the ground.

  • Report this Comment On March 08, 2013, at 11:30 PM, TMFUltraLong wrote:


    At $10.60 per year in dividends and with expected EPS of $44.32 this year, it works out to a rounded up 24% payout ratio.


  • Report this Comment On March 09, 2013, at 1:38 AM, dwilh51183 wrote:


  • Report this Comment On March 09, 2013, at 5:24 AM, hiddenflem wrote:

    Blackberry bwahahahahhaa.

  • Report this Comment On March 09, 2013, at 7:16 AM, OHGtop10 wrote:

    What's a blackberry??

  • Report this Comment On March 09, 2013, at 7:43 AM, Oril wrote:

    iPhone 5 are piling up in warehouses, carriers like sprint are losing billions because they are unable to sell them. They are being shipped back to third world countries and given away for free.

    Word is out that sprint will also be offering the new blackberry unlocked in the US soon.

    Welcome to reality fools.

  • Report this Comment On March 09, 2013, at 8:45 AM, OHGtop10 wrote:

    What is sprint? Seriously Orie if you were lucky enough to make some money on RIMM, I would take profits now. I have never met anyone who owns a blackberry and I don 't think I ever will. Also I don't think people here will take you seriously if you write stuff like AAPL is giving away I-phone 5's for free. If you do have any specific information please provide a link.

    As for AAPL if anyone from Management or someone who knows someone in management is reading this Please, Please Buy some Shares back. I would also love to see AAPL and Google working together to build out a Google/Apple fiber network and other joint ventures. They literally could take out Verizon and Comcasts market Cap in about 5 years give or take a few years.

  • Report this Comment On March 09, 2013, at 9:10 AM, Morgana wrote:


    You say IPhone 5 phones are piling up in warehouses. Hmmm.

    One of the great things about MF is that our FOOLS substantiate claims they make, even if those supports are open to interpretation. It is nice to hear proof.

    Where is yours?

    Please add facts which you are then free to interpret.

  • Report this Comment On March 09, 2013, at 9:39 AM, Oril wrote:

    Another indication of the success of blackberry and the overwhelming enthusiasm shown in Canada for the new Z10. Major carriers like rogers and Bell have trouble keeping them in stock.

    Meanwhile further proof that people are dumping their iPhones, these carriers are offering some deals on 5 and 4 phones for free on three year deals.

    Still nobody wants them.

    Those of you who have never met anyone who uses a blackberry, you never will as long as you live in that trailer.

  • Report this Comment On March 09, 2013, at 10:05 AM, GordonsGecko wrote:

    Mullets and Blackberries for everyone, eh?

  • Report this Comment On March 09, 2013, at 1:24 PM, bluedepth wrote:


    iPhone 5 (16GB) is being offered by both Bell and Rogers in Canada for $99 with a 3-year contract. That's $100 less than what it's sold for in the US with a 2 year contract. Neither offer the iPhone 5 for free, only the low-end iPhone 4. ATT offers iPhone 4 for $0.01 Essentially all US plans max out at 2 years.

    But, the cost of the plan is where the carriers really reap rewards. For a pretty low 1GB data plan Bell charges $65/month, Rogers $70, plus taxes. Over three years, if a user had no overages whatsoever and no long-distance calls that amounts to $2,340 and $2,520 respectively (sans tax). Not exactly a steal. In fact, in an article showcased by the CBC, Canada has the highest costing cell plans in all of the developed nations.

    Comparable costing from ATT have 3x the data (3GB vs 1GB), and nationwide calling (not available with Canada plans).

    What's my point? Lower point-of-sale price points don't say very much about overall demand and (more importantly) total sales.

    JP morgan estimates this quarter's iPhone sales will be 47.9 million units. Growth may be slowing, but it is still *growing*. As production has increased, margins are ticking back up as well.


  • Report this Comment On March 09, 2013, at 1:39 PM, janhrdina wrote:

    Thanks Sean -- Of course you're right. I was asleep at the wheel (i.e., looking at payout ratio numbers from Yahoo Finance instead of just doing the simple calculations myself).

    Still a nice opening payout ratio that leaves a lot of room for expansion.

  • Report this Comment On March 09, 2013, at 2:36 PM, Oril wrote:

    You obviously have never met the President of the United States who by his own admission still owns a blackberry and who will without a doubt will be soon upgrading to BB10 which has the best and most secure operating system in the world. Always has and always will.

    And yes nothing is for free, particularly phone plans.

    Every intelligent being is aware that paying for an unlocked phone upfront is the way to go.

    Yes Canada suffers from the most expensive phone plans in the world but times are changing and so are the laws.

    It's funny how the fools went on about discounts on blackberry plans being bad for the company but now that the carriers are offering free iphone plans it is somehow good for apple.

    The bottom line is the carriers will do whatever to reduce unwanted inventory and iPhone is definitely losing market share back to blackberry.

  • Report this Comment On March 09, 2013, at 2:45 PM, Oril wrote:

    And by the way, nationwide as well as international text and voice is free if charge for blackberry users on Blackberry messenger. BBM

    That's sure to be a future iPhone killer when the new phones are rolled out in the states.

  • Report this Comment On March 09, 2013, at 4:47 PM, lojikfool wrote:

    Sean, when you say "iPhone sales are slowing on a year-over-year basis" do you mean past or future or sales growth is slowing or actual sales are decreasing. I'm pretty sure the only think slowing down is the forward growth of sales (both units and revenue) but when you're still growing your major product line (not to mention iPads growth, both of which constitute 80% of revenue) and you're sitting at 6.x EV-LTE/FCF (or soon to be 15% FCF Yield (before all the taxes)) we have entered the realm of hysteria.

    Even developed markets are nowhere near saturation yet, Apple can still afford to lose market share as they have been doing for the next 5 years and still grow profits.

    Not to mention emerging markets.

    Not to mention enterprise.

    Not to mention new product categories.

    Not to mention easing of supply constraints.

    Not to mention increase of dividends and buybacks.

    Disclaimer: I am selling my apartment to buy Apple Shares.

  • Report this Comment On March 09, 2013, at 5:03 PM, Winnie2013 wrote:

    So if I buy a BB Z10 today I can:

    Use my MLB app

    Use my Slingbox app

    Do online banking

    Deposit checks with camera

    Do bill pay

    Buy and sell stocks on my brokerage app

    View images in map app

    Sync my outlook on my PC

    Backup my data wireless

    Have a cloud system to sync my data between all my devices and computer

    If this is true, please give me directions to the nearest phone store so I can spend my money to do these better than my iPhone.

    Your comments about BB taking back market share. Please read...

    The Premier 100 Conference focuses on both the business strategies and technologies that are transforming today’s organizations.

    Meanwhile, Matt Hamblen talks to IT users at P100:

    ...nobody, out of about 20 CIOs and senior VP's of IT...said they would be endorsing or adopting the platform, except for one CIO who...said, "I only use BlackBerry because my boss wants us to." ... At a luncheon...I also asked a group of eight CIOs...if anybody was moving to the new BlackBerry device, and everybody but the current BlackBerry user shook his head...some even grunted, almost in disgust.


    One of the CIO's cornered me later and said..."All that doesn't matter if the users buy something else as their phone." a Bring Your Own Device world, the users get to decide what works. CIO told me, "We battled the users over BYOD and the users won.".


  • Report this Comment On March 09, 2013, at 6:32 PM, Oril wrote:

    T-mobile USA will start rolling out Blackberry Z10 phones to its business customers starting Monday morning March 11. Government agencies who use blackberry will likely start getting them as well. When they are handed out the employees can do two things. They can roll their eyes and whine like a little girl, whawhawha, I wanted an iPhone. Or they can say thank you very much for the free neat new phone and get back to work.

    No one said that blackberry was going to take back the market overnight, it will be one phone at a time.

    Don't forget, ten years ago apple shares were trading for half of what blackberry is today.

    I know most fools here are too young to remember, for sure the ones that write these ridiculous "analysis" are.

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