Dividend stocks can be great investments. Yet looking exclusively for dividend stocks can cause investors who don't need the income now to miss out on future dividend dynamos that could pay massive sums of money when they need it.
On a dividend-stocks hour of Motley Fool Live on Oct. 29, "The Wrap" host Jason Hall pointed out that one of the best growth stocks in recent decades is a perfect example of this: Apple (AAPL -1.00%). Apple has paid out more than $14 billion in dividends over the past year. Less than a decade ago, the company wasn't paying out a single penny. If you don't need the income right now, the best dividend stock to buy might not be paying a dividend yet.
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Jason Hall: Brian Feroldi, our colleague who spends a lot of time on here and does a ton of stuff for members of many of our services, he has often said that sometimes the best dividend stock to buy is one that's not paying a dividend yet. Apple is a great example of that. This is a company that was hypergrowth for a number of years, and then because its cash flows became so immense, management under Tim Cook's stewardship made the decision that because the business is kicking off so much free cash, we can't allocate all of it back into the business to continue growing the business.
We have so much excess cash, we need to do something with it. Giving some of it back to investors in dividends is a smart capital allocation move. Because a lot of cash that belongs to somebody else (shareholders) when you're a manager of a company, can sometimes lead to really dumb decisions as investors.
Think about it as an investor. Sometimes you feel like you have to do something, and sometimes the best thing to do is nothing. We'd have a bunch of cash sitting on the balance sheet. Sometimes the best thing to do is get rid of that cash and send it back to the people that invested in your company. Tim Cook, I think, has done an incredible job and I don't think he gets, its near enough credit for helping to keep that momentum with Apple turning it into what's become a great dividend stock.