Apple (NASDAQ:AAPL) stock reports earnings on Tuesday afternoon, and all eyes will be on the California-based giant to see if Tim Cook can add another chapter of growth on top of AAPL’s amazing run in 2019.
In short, the answer is a resounding, “yes.”
Now, I’ll be the first to say that it would be foolhardy to demand that Apple stock is going to reward investors with another 100% growth, as it has in the last 12 months. As much as I love AAPL stock, not even I am banking on growth like we saw in the super-charged market last year.
However, the company has a lot of great things going for it as it approaches its fiscal first quarter 2020 earnings report after the market closes Tuesday. That said, here are three reasons why Apple stock is still a strong buy in my book, even without knowing the exact number that the company will report this week.
Apple’s Services Will Be King
Sure, Apple is best known for its dominant iPhone and its brilliant computers, including the MacBook. However, iPhone sales continue to slow as more and more owners are apt to hold on to their older versions and squeeze another year out of them. Recent advances, such as ultra-wide cameras, an improved Siri virtual assistant and cameras per device haven’t been enough to convince people to lay out $1,000 for a new cellphone.
Apple has stopped reporting hardware unit sales, and instead reports revenue breakdowns by product category. Those are more palatable numbers for Apple to release considering the high price tag that comes with top-of-the-line products.
But, what’s more exciting about Apple these days is its services division. Apple reported $12.5 billion in services revenue — money earned from iTunes and the App Store — last quarter, up 18% from a year ago and investors should expect more growth in 2020.
Overall, services is important for two reasons. First, it provides important diversification for Apple, which still gets roughly half of its revenue from iPhone sales. And secondly, services revenue is a high-margin area for Apple — which means a lot of that $12.5 billion goes right to the company’s bottom line.
It’s All About the Cash
Apple has a ridiculous amount of cash on hand, with $205.9 billion as of its last earnings report. That’s one of the biggest cash hordes of any U.S. company, and it gives Apple amazing opportunities.
It’s spending heavily to provide content on its Apple TV+ streaming service, developing programs such as “The Morning Show,” “For All Mankind,” “See” and “Dickinson.” At $5 per month, Apple is priced cheaper than competitors such as Netflix (NASDAQ:NFLX), Disney’s (NYSE:DIS) Disney+ and HBO Max.
That said, the company’s cash will let it ramp up quickly in the streaming wars.
Behind the scenes, Apple doesn’t hesitate to buy out smaller companies that fit within its scope. Tim Cook doesn’t often talk about Apple acquisitions, but he make some telling remarks last spring at Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.A) annual shareholder meeting.
Speaking to CNBC:
“If we have money left over, we look to see what else we [can] do,” he said. “We acquire everything that we need that can fit and has a strategic purpose to it. And so we acquire a company on average, every two to three weeks.”
You read that right. It’s nothing for Apple to buy a company every couple of weeks — and you can’t beat that advantage.
The Growing Dividends for Apple Stock
I wouldn’t call Apple a dividend stock. I like to see a solid 2% percent, at least, before I start thinking hard about dividends. However, Apple is starting to get my attention when it comes to its yield.
Apple’s dividend is just about 1% right now, but that pittance is more because the AAPL stock price continues it’s amazing ride. But it’s notable that Apple has increased dividend growth since 2012, and the per-share payout has more than doubled in seven years.
Most of Apple’s dividend increases have been about 10%, although last year’s increase was only 5% and was combined with stock buybacks. Therefore, I’m expecting a 10% increase in the AAPL dividend again this spring — which will be another great reason to snag Apple stock in 2020.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.