Is Apple a great dividend to buy?

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Apple (NASDAQ:AAPL) is one of the best known companies in the world. But one of the characteristics it is least known for is its dividend payout. The company is relatively new to the list of dividend-paying stocks and is nowhere near Dividend King status. The tech giant started paying a dividend again in 2012 after a 17-year break.

Still, Apple could be a great dividend-paying stock for investors buying it today. Let’s examine its ability to pay dividends and consider its valuation to determine its virtues as a dividend-paying stock.

Image source: Getty Images.

Apple posted solid dividend growth

Income investors may be encouraged by Apple’s accelerating dividend payments. From 2012 to 2021, the company increased its dividend per share from $0.10 to $0.85. This means that shareholders have seen their dividends increase more than eight times during this period.

During the same period, earnings per share increased from $1.58 to $5.61. Profits are crucial to maintaining a dividend payout. In this regard, Apple’s quality earnings growth is a good sign for the prospects for increased dividends.

Its revenues are supported by the continuous innovation of its products, such as the iPhone, Apple Watch, AirPods and iPads. Added to this is a robust and expanding services segment that totaled 20% of revenue in its most recent quarter, which ended March 26. The rise of the services segment is crucial as it generated a gross profit margin of 72.6% on a gross profit margin. 36.4% for its products.

AAPL Payout Ratio Table

AAPL payout rate data by YCharts.

While Apple’s current dividend yield is a modest 0.65%, there’s plenty of room for it to rise when considering the company’s dividend payout ratio. This is the percentage of profits paid out as dividends. More recently, Apple’s dividend payout ratio was 14.5%, so the company could sustainably increase its dividend payout even if earnings remained constant, or maintain its current dividend even if earnings declined. The lower the percentage, the more leeway a company has in paying its dividends.

Apple’s stock is cheap

Comparing Apple’s price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) ratios to their historical levels reveals that it’s priced slightly above the average of those ratios over the past last five years. In other words, over the past five years, there have been times when Apple was more expensive and times when it was cheaper.

Table of AAPL PE ratios

AAPL P/E ratio data by YCharts.

Another way to measure valuation is a comparison with a competitor. Using the same metrics, Apple sells at a discount to one of its rivals, Microsoft (NASDAQ: MSFT). Of course, this isn’t an apples-to-apples comparison (pardon the pun), but Microsoft is a big tech stock with a mix of hardware and software revenue.

As a result, income investors who buy Apple stock today will likely thank themselves 10 years from now. To answer the title question more directly, yes, Apple is a great dividend-paying stock to buy.

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Parkev Tatevosian holds positions at Apple. The Motley Fool holds posts and recommends Apple and Microsoft. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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