Apple: Rising Dividends Win In The Long Run (NASDAQ:AAPL)

Apple: Rising Dividends Win In The Long Run (NASDAQ:AAPL)

The 4 to 1 Apple (NASDAQ:AAPL) stock split sent shares into a crazy buying frenzy, and Apple reached $2 trillion in market cap for the first time.

Many bearish investors noted that shares were overvalued and encouraged investors to dump their shares.

If you bought Apple only due to FOMO (fear of missing out), then now would be a good time to exit your position. Buying stocks based on huge run-ups is never a good, long-term investing strategy.



Emotions replace logic, and most investors end up buying Apple stock near the top and must panic sell to avoid massive losses.

However, Apple is one of the few buy-and-hold stocks that will reward patient investors with passive income in their retirement years.

In order to unlock the true value behind Apple stock, let’s take a look at the power of rising dividends.

Rising Dividends Are the Key to Long-Term Investing Success

While everyone is talking about short-term revenue projections and valuations, I tend to look at what I’m actually receiving as an Apple shareholder.

That means I’m looking at dividends, and I want to see rising dividends paid consistently over time.

Apple recently paid out 82 cents per share in the most recent quarter and grew its dividend by 10% on average over the last five years.

Additional share buybacks in the future will return additional value to shareholders, but the real power of Apple stock is in the dividend payments.

In fact, a study performed by Hartford Funds showed S&P 500 stocks with rising dividends outperformed all other stocks over the last 47 years.

Return of S&P 500 Stocks by Dividend Policy(Source: Hartford Funds)

When you sell your stock, then you miss out on future dividend payments that could cost you a fortune in the long run.

Using a conservative 6% dividend growth rate, Apple will pay shareholders around $1.47 per share in dividends in the next 10 years.

AAPL Future Dividend Growth

(Source: Macrotrends.net)

Selling on a panic dip may cause regret in the future as those rising dividend payments stack up. The power of compounding dividends allows your portfolio to grow on autopilot while you retire and step away from the workforce.

Another benefit of holding Apple stock during a panic selloff is your shares earn a higher yield as the stock price drops.

We’re not even talking about potential capital gains, but in case you didn’t know, Apple shares sport a ridiculous 33% CAGR over the last 15 years (per AAPL Morningstar trailing returns).

Dollar Cost Averaging Could Beat Timing the Market

Instead of getting caught in the cycle of buying hype and panic selling, I use dollar cost averaging when investing in A+ companies like Apple.

Dollar cost averaging is a surefire way to build a larger position while avoiding the emotional stress of trying to time the market. You simply buy a fixed amount of Apple stock every month and purchase more shares when the price decreases.

Apple maintains a long-term track record of excellence and it will continue to evolve and serve its fanbase quite well. Whether it’s selling iPhones or moving towards a recurring subscription-based model, I believe Apple will stay on top of the tech industry.

5G, New Smart Devices & Services Will Dominate Apple’s Decade-Long Strategy

Apple will be a huge beneficiary of the 5G revolution as faster download speeds will make core electronics and gadgets a must-have item for every consumer.

There’s no doubt that Apple is the gold standard when it comes to smartphones, laptops, and other electronics. The Apple brand remains strong even during the COVID-19 pandemic.

Smartwatches are another emerging trend that I noticed as of late. The traditional purpose of a watch to tell time lost its relevance due to the rise of smartphones, but smartwatches pack a lot of power.

I predict smartwatches will catch on throughout the decade and become a solid revenue generator along with Apple’s long-standing core of iPhones, Macbooks and iPads.

Finally, the subscription service model continues to grow. Will the Apple recurring revenue business exceed its product based revenue in the future?

It’s too early to tell, but Apple has over 550 million paid subscribers across all platforms according to CFO Luca Maestri in the Q3 2020 Earnings call.

Conclusion

With a massive $193 billion cash pile, Apple holds enough cash to survive any short-term issues with ease.

I’m excited to see where Apple heads as we move towards 2021. New product launches, the widespread adoption of 5G, and a massive subscription business should continue to pay dividends (literally) for Apple shareholders.

It’s tempting to sell Apple stock and look for quick returns elsewhere, but this may be a costly mistake for the prudent dividend growth investor.

I’ll continue to buy Apple stock and watch those dividends pile up.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


Originally published on Seeking Alpha

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