If you're looking for a stock that can deliver consistent growth and dividends, you might want to consider Apple (AAPL -0.35%). The tech giant is the largest holding of Warren Buffett's Berkshire Hathaway, (BRK.A -0.76%) (BRK.B -0.69%) accounting for a whopping 47% of its stock holdings at last count. Here are some of the factors that make Apple stock a compelling buy and hold right now.
Strong financial performance
Apple's financial performance has been impressive in recent quarters, despite the headwinds of high interest rates, unfavorable foreign exchange rates, supply chain disruptions, a slowing global economy, and geopolitical uncertainty.
In the second quarter of fiscal 2023, for example, Apple reported revenue of $94.8 billion. This figure does mark a 3% decrease from the same quarter a year ago, but Apple still returned a staggering $23 billion to shareholders through share buybacks and dividends in the quarter. A business that can return that much cash to shareholders in a difficult operating environment is a model of success.
Apple is also poised to benefit from the recovery of the global economy in 2024. Wall Street analysts project that the tech behemoth will grow its revenue by 6.7% in 2024. Mid-single-digit revenue growth is a remarkable achievement for a company with market value of over $3 trillion as of this writing.
A loyal customer base
One of the key advantages Apple has over its competitors is its extremely loyal customer base. According to a survey by SellCell, a platform for selling used phones and tablets, 92% of iPhone owners plan to stick with Apple the next time they upgrade their devices. This figure is notably higher than the loyalty rates for competitors such as Samsung (85.7%) and Alphabet (84%).
Apple's loyal customers are willing not only to buy its hardware products but also its lineup of popular services, including Apple Pay and iTunes. That's great news, because Apple crossed the 2 billion active device user threshold last December. It thus has a huge customer base to leverage for its family of value-added services.
Moreover, Apple's customer loyalty is likely to increase further with the introduction of new features and products that enhance its ecosystem. For instance, Apple recently launched the Vision Pro mixed-reality headset. While the Vision Pro is unlikely to be a major revenue driver because of its hefty price point, cutting-edge innovations like this one are likely to attract even more customers and subsequently bolster retention rates even further.
A reasonable valuation and reliable dividend
Despite its strong performance and growth prospects, Apple's stock is not overly expensive compared to its peers. At present, Apple's stock is trading at 29.6 times projected earnings. For comparison, Microsoft shares trade at over 30 times projected earnings, and Amazon shares exchange hands at over 82 times forward earnings. Apple's shares, in turn, are reasonably valued for a high-growth tech company.
What's more, Apple stock offers a modest annualized dividend yield of 0.5% at current levels. While its dividend yield is below average for a large-cap company, its dividend is exceptionally well covered by earnings. Underscoring this point, Apple's trailing-12-month payout ratio of 15.5% is near rock bottom for a megacap company. Most of its peers, after all, sport payout ratios that consistently fall between 40% and 60%. Bottom line: The company should have no problem raising its dividend for the 12th consecutive year in the next fiscal period.
The big picture
Buffett is a big fan of Apple for a host of reasons. It has stellar financials, a loyal customer base, a reasonable valuation, and a well-supported dividend program. So if you're looking for a stock that can deliver long-term value and income, you might want to follow Buffett's lead and buy Apple hand over fist right now.
