On May 31, 2013, I called Apple a dividend investor's dream stock. After the stock's 26% sell-off in the past 12 months, is it almost worthy of such a bullish name again?
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Apple store. Image source: Apple.
When brand power, a cheap valuation, and dividend growth collideThe last time I called Apple a dividend investor's dream stock, its dividend yield was only 2.5% -- subpar compared with many popular large-cap dividend stocks, which often have yields above 3%. But Apple stock's value to income investors at the time was found in more than its yield. When this yield was combined with the undervalued characteristics of the stock and the dividend's growth potential, Apple looked like a downright bargain. At the time, shares were trading at a split-adjusted $63.60.
Almost three years later, investors who bought shares at the time have seen a 47% gain -- and that's not even including dividends. This return nearly doubles the S&P 500's rise during the same period.
What's interesting is that my bullish call on the stock involved zero speculation about new products, and it didn't even consider the trajectory of smartphone sales. It simply acknowledged how the stock price didn't reflect the underlying fundamentals supporting dividends and dividend growth.
Time for dividend investors to buy again?Despite the stock's huge gain since my bullish call three years ago, the fundamentals in relation to the stock's valuation are looking similar today, and the stock is subsequently starting to look very enticing.
In 2013, I highlighted three areas where the company stood out as an A-grade dividend investment. Here's how Apple measures up on these same metrics three years later.
On all three metrics, Apple is still looking solid.
Free cash flow-to-sales: Highlighting Apple's sustained cash-generating power, about $0.24 of every dollar of sales is making it to the company's free cash flow -- about the same as the impressive $0.26 of every dollar it was converting to cold, hard cash several years ago.
Cash per share: Apple's cash per share is up significantly. In May 2013, cash represent 36%. Today, it accounts for 46% of the stock's value.
Payout ratio: And the tech giant is still only paying out a fraction of its earnings, despite increasing its dividend by about 10% each year since. A payout ratio of just 23% leaves plenty of room for more dividend growth.
Of course, Apple's performance on these three metrics doesn't automatically make the stock just as good of a buy as it was in 2013. But with the stock's dividend yield back up to 2.5% for the first time since 2013, even as its FCF-to-sales, cash per share, and payout ratio are looking attractive, Apple is definitely beginning to look like a compelling investment for investors looking for reliable and growing dividend income.
Just as I did in 2013, I'll leave investors with a challenge:
Do you know of a stock with a dividend yield in excess of 2.5% that also outperforms Apple when it comes to its FCF-to-sales, payout ratio, and cash per share metrics? Chances are, there aren't too many investments -- if any -- that meet this criterion. And there almost certainly aren't any that meet this criterion and also have the staying power of Apple's iconic brand.
Apple isn't quite the "dream stock" it was in May 2013, but it does look like a solid bet for dividend investors.
The article A Dividend Stock to Buy: Apple, Inc. originally appeared on Fool.com.
Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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