Is Apple A Good Dividend Stock?

When you think about Apple [AAPL] what comes to mind? Is it the ubiquitous iPhone? The popular MacBook? Apple Music? Or, maybe you imagine what it would have been like to buy into Apple early? All of those are defining elements of the brand and its legend, but what some investors do not realize is that Apple pays a dividend. But is Apple a good dividend stock to buy?

Apple Dividend Payments 101

Apple paid a dividend consistently from 1987 to 1995, when the company suspended its dividend offering. In 2012, Apple started to offer a dividend once again, and it has increased its dividend every year since.

Even now, in the age of COVID, Apple increased its quarterly dividend by $0.05 ($0.20 per year). At present, the dividend Apple pays is close to double what it was in 2012.

Apple began offering a dividend again in 2012. The company had enjoyed so much success from its iPod and subsequent iPhone and iPad offerings – products it developed using the cash it saved from not offering dividends for those 17 years – that it decided to reopen its dividend program.

It also started a share repurchase program. The dividend alone cost Apple $2.5 billion per quarter in 2012, making it one of the top dividend stocks at the time. The company predicted that it would spend $45 billion on dividends and stock repurchases.

Currently, Apple pays a $3.28 dividend per year – paid as $0.82 per quarter. That puts the company’s dividend yield at 0.85%, which is about average for tech stocks. In comparison, the average dividend yield for the S&P 500 is just under 2%.

Keep in mind that companies normally offer dividends as a way to reward or incentivize investors when they know that their share price isn’t likely to produce high levels of growth. It helps balance things out and encourages existing investors to not sell their shares.

So, does Apple’s dividend make it a value trap?

Is Apple Dividend A Value Trap?

Value traps are everywhere in the stock market. They make it look like an investor will have a chance at earning higher-than-average returns on an investment, but the reality doesn’t shake out.

Apple’s dividend could let some investors believe that they will be able to collect dividends while tapping into the astronomic growth for which Apple has been famous.

If Apple has become a mature stock, likely to only produce marginal returns year over year, it could be perceived as a value trap. However, that wouldn’t be fair.

Savvy investors know that companies experiencing high levels of growth don’t offer dividends. They need every penny to fund research and afford the cost of goods until their next big item takes off.

Most growth comes with high amounts of debt. Those investments may pay off, but they will be more likely to pay off if the company isn’t bleeding its reserves to offer dividends.

Point in fact, when Apple was in the middle of developing the iPod for market and launching product after product, it ceased paying dividends.

Why Buy Apple Stock?

Now, Apple is entering a new, more mature phase in the evolution of the company. It has a strong stable of products and consumer demand is strong.

Many of Apple’s efforts involve technology and content. The company has been working to expand Apple News and add Apple News+ Audio Stories.

Apple is also working on becoming carbon neutral in its operations by 2030. It will reduce its carbon emissions by 75% and use carbon removal solutions to offset its remaining footprint.

The company will adopt a low carbon product design and develop new ways to expand the efficiency of its existing operations.

For example, Apple is developing low carbon aluminum for the bodies of its laptops and other products while working on ways to remove carbon from the atmosphere, such as rehabbing degraded forests and ecosystems.

Should You Sell Apple Stock?

For Apple to be successful, there are many moving parts. The company has to develop products people want, at prices they want to pay, and make them easy to purchase. It also has to manufacture the components used in those products, put them all together, move them from the factory to the distribution centers, and move them from those hubs to stores, warehouses, and individual consumers.

All it takes is one thing to disrupt the entire process.

Apple is a strong stock, but it does have some important risk factors. COVID has had a significant impact on the company. Apple’s revenues are impacted any time that economic conditions take a downturn.

Normally, there is a balance. When the economy in one place is depressed, it is strong in another place. Overall, it works out, normally.

COVID changed everything. It didn’t just mean that people weren’t buying new devices because they were worried about the economy or that Apple’s product line wasn’t keeping up with its rivals.

In this case, the entire network that gets Apple products in the hands of people around the world stopped functioning. The full effects of that situation have not yet been realized.

Remember, Apple’s entire supply chain was disrupted. Manufacturing facilities had to shut down and some logistic flows stalled. Also, many of Apple’s stores closed down temporarily.

On top of that, there were actual shortages of iPhones. Demand for Apple products waned as the situation developed.

Is Apple A Good Dividend Stock?

Apple will probably come back from this – the demand for high-quality tech products is high in a world that involves so much working for home – but the company will need time to get back to business as normal.

Plus, investors should keep in mind that there could be a second wave of COVID that disrupts operations and sales just as much, maybe more.

The future is uncertain. A strong company like Apple should have the expertise to get back on course. Whether or not Apple is a good dividend stock for your portfolio depends on your investment timeline and your tolerance for risk.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.