Remember the good ol’ days when Apple Inc. (NASDAQ:AAPL) was a tech darling thanks to high-margin smartphones that were flying off the shelves? Those days are no more, but that’s not a bad thing for investors.
Apple has grown to the kind of behemoth that’s sitting on $45 billion in cash and that still enjoys massive market share, even if its size means eye-popping growth is hard to come by. This week’s earnings report confirms something I’ve suspected for some time, though: AAPL stock investors are going to more than pacified as the company continues to evolve. Tim Cook & Co. are going to throw money at them to make sure of it.
If this week’s $100 billion buyback and 16% dividend increase aren’t proof, I don’t know what would be. The dividend yield for Apple stock is now almost 2%. As long as the company delivers slow-but-steady growth, buyers of AAPL shares are almost guaranteed to be sitting on a juicy yield-on-cost in a couple years.
For Apple stock, that slow-and-steady growth is a relative term of course; the blessing and curse of being a darling is that you will always be compared to your best self. But this week’s earnings report showed that, even if iPhones aren’t fueling growth, there is still growth to be found.
Apple only grew unit sales for its flagship product 3% year-over-year. Still, it managed to make more off the phones it did sell, to the tune of a 14% expansion in revenue.
Meanwhile, services grew 31% year-over-year and had their best quarter ever, Tim Cook said in the earnings call. And wearables sales increased 50%. In fact, the segment that sells the Apple Watch, Beats headphones and AirPods itself is the size of a Fortune 300 company, according to Cook.
That’s good enough for Apple stock.
Apple Stock Is More Than Just Its Reputation
“This wasn’t a share gain predicated on excitement,” Shira Ovide opined when Apple stock gained after the earnings release. “It was a gain of relief, fueled by lowered expectations.”
I don’t really disagree, but I would replace “lowered” with “updated.”
Imagine an alien touched down on earth and didn’t know about Apple’s hype and legacy, had never seen the legendary cover of the Steve Jobs book, had never known a world without smartphones. That alien would look at Apple stock, analyze its fundamentals, and see a pretty darn solid company.
I think CNBC tech reporter Ari Levy would agree. On Tuesday, he tweeted: “3 things are assured in life. 1) death 2) taxes 3) Apple’s 38% gross margin.”
That gross margin is going to fuel the dividend that will draw new investors to Apple stock. The new normal is that AAPL is a payout pick now. The company simply needs stability–which it’s proven it has–to keep that payout coming and growing. Organic growth being fueled by headphones and services is just the cherry on top.
As of this writing, Robert Martin was long AAPL.
