You'd be hard-pressed to find a stock that's made more people money than Apple (NASDAQ:AAPL). One share of Apple stock purchased in December of 2000 -- a little less than 15 years ago -- would have returned 13,600% by today, including dividends.
But how Apple stock has performed in the past and how it and its dividend will perform in the future are two very different things. Below, I'll offer beginning investors the view from 30,000 feet when it comes to Apple stock and its dividend.
The most important metric for dividend investors
Dividend investors love those wonderful quarterly deposits in their brokerage accounts. The most important metric to watch to figure out if those payments will continue -- or even grow -- is free cash flow (FCF). In the simplest of terms, this is the amount of money that a company is able to put in its pocket at the end of any 12-month timeframe, minus capital expenditures.
Apple only started paying a dividend a few years back. Since then, here's what the company's payout and FCF situation have looked like.
From this we can draw two very clear conclusions. The first is that Apple's dividend is completely safe. Over the last twelve months, the company has brought in $60 billion in FCF, and it has only needed to use 19% of this FCF to pay its shareholders. That low of a ratio means that the dividend is safe even if economic times get tough -- and that there's plenty of room for growth in the future.
The second takeaway is that Apple is growing its FCF at a steady pace -- another very positive sign. It's difficult to fathom, but starting with a gargantuan base of $45.5 billion in FCF just 15 months ago, Apple has been able grow this number by over 30%.
Though some might scoff at the company's 1.5% yield, Apple's dividend is very safe.
But what about Apple stock?
It's no secret that Apple stock has been flirting with all-time highs for a while now. Currently, Apple is the most valuable publicly traded company in the world, clocking in at a market cap of over $750 billion. If the market were to push Apple stock just 33% higher, it would become the first ever to reach a $1 trillion valuation.
If you want to dig into the company, however, it's important to understand where all of that money is coming from. If we take a look at the last twelve months, here's what we see:
Clearly, nothing is more important to the company than the iPhone, which accounts for an astonishing 60% of all revenue. That may change in the coming months with the release of the iWatch. But investors need to feel confident in the future of the iPhone, above all else, if they want to put their money behind the company.
One factor that might give some solace to those who think the company is simply too big to grow in a meaningful way is the relatively low price for the stock. Currently, shares trade around 18 times earnings and just 13 times FCF -- both below the market's average.
On one hand, Apple is anything but an "average" company. It has grown earnings by 29% last year, and is expected to continue the upward climb by at least 15% this year. So these prices could be viewed as bargains.
On the other hand, however, the company is heavily tethered to producing "the next great thing" at least once every five years to maintain its premium standing over the competition. While the Apple ecosystem provides some measure of protection, without smash hits the company could see its value fall over time.
In the end, your own personal experience with the company's products should help inform your decision of whether or not to buy shares of Apple stock. If you believe its best days are still in front of it, then don't let its historic run stop you from getting in today.