Apple Inc. (NASDAQ:AAPL) has certainly seen better days, and AAPL stock has spent most of this year in a brutal sideways grind as analysts have struggled to handicap iPhone sales in a sluggish global economy.
More recently, of course, Apple stock suddenly looked alive after reported vastly better than expected revenues and profits this week; AAPL stock had its best trading day in over two years, ending the day up 6.5%.
I’ll never complain about a stock I own jumping nearly 7% in a day. In fact, that’s the sort of thing that will inspire me to pour a drink and light up a cigar. But the truth is that I don’t really view AAPL stock as a growth play. It has evolved into a value stock… and one that I’d consider a good pick for a retirement portfolio.
As we get older, our investment objectives change. We’re less interested in short-term trading profits and more interested in stability and income generation. Ideally, I like to see the following characteristics in place for a “retirement stock”:
- Business should be stable and predictable… or at least as stable and predictable as you can get in a fast changing economy.
- The company should have a healthy balance sheet with minimal debt.
- The company should be shareholder friendly, with an emphasis on consistently raising its dividend.
A portfolio chock-full of companies meeting these criteria is one that I could feel comfortable retiring with.
How Does AAPL Stock Stack Up?
The first point about a stable business will be the most controversial for AAPL stock, given Apple’s status as a technology company. Technology is notoriously cutthroat competitive, and it wasn’t that long ago that AAPL was a struggling also-ran in the home computer market. Then Steve Jobs brought the iPod, and then later the iPhone, and the rest is history. Apple is now the world’s premier smartphone maker with an ever-growing empire of consumer and business gadgets.
And this is where I believe Apple stock makes the grade in a retirement portfolio. While Apple Inc. no longer churns out new earth-changing products every other year, it’s very effective at getting its customers embedded in the Apple ecosystem. One you have your photos saved on iCloud, your music on iTunes and untold sums of money spent on apps, changing to a rival smartphone platform becomes cost prohibitive.
It’s the hotel California… and you can never leave. So you upgrade your iPhone every two years or so and carry on.
On the second point – balance sheet health – AAPL stock is really in a class all of its own. Apple has the largest cash hoard of any company in history with a whopping $231.5 billion as of the most recent quarter. To put that in perspective, were Apple’s cash in the bank its own company, it would be the 11th biggest company in the S&P 500 Index. Just stop and think about that for a minute.
Yes, Apple’s debt load has grown in recent years, in part to finance its large stock repurchase program. Apple chose to borrow for tax reasons, as repatriating the cash from overseas would incur a 35% penalty. But even if Apple were to bring the whole lump sum home, paying the full tax on the total, the company would still have more than enough cash to pay off its entire debt twice over and would still have more cash leftover than it would know what to do with.
And finally, we get to the third point: shareholder friendliness, and specifically a long history of dividend hikes.
Tech companies have historically been stingy with their shareholders, and Apple was no exception. But starting in 2012, Apple started taking its shareholders seriously and initiated a dividend. It’s been raising it like gangbusters ever since. In less than four years, AAPL has bumped the dividend by more than half even while reducing its share count by 17% due to buybacks.
Between the 2% dividend and the roughly 5% buyback yield, you’re looking at a shareholder yield of about 7%. Not too shabby.
While Apple stock may not fit the mold of your “typical” utility or telecom retirement stock, I’d be willing to be that an Apple retirement will be far more lavish.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL stock.
