Forget Apple Stock Bears, the iPhone Maker Still Dominates
I never thought I’d say this about a hardware device maker, but I believe that Apple Inc. (NASDAQ:AAPL) stock is one dividend stock worth owning forever.
Apple stock has been around for more than three decades, but it really took off after the launch of the first “iPhone” in 2007. And, despite working on a million different things at the moment, making hardware devices is still the company’s core business.
If you have been following the stock market over the past year, you would know that device makers aren’t exactly the hottest commodities in the tech sector. For instance, GoPro Inc (NASDAQ:GPRO), which once dominated the action camera business, saw its stock price plunge more than 80% since last summer. Fitbit Inc (NYSE:FIT), a maker of fitness tracking devices, is down more than 70% since its last year.
The idea is that these companies have to keep selling devices to keep their investor appeal. If demand slows down, or if there’s a hiccup with one of their suppliers, their financials could be severely impacted. The worst case is when a competitor launches a product that wins over its consumers. Just take a look at BlackBerry Ltd (NASDAQ:BBRY)—which is now out of the smartphone-making business—and you’ll see what I mean.
Based on all these examples, you can probably see why dividend investors are usually not a fan of hardware device makers. However, they might want to make an exception for Apple stock.
You see, those three companies I mentioned—GoPro, Fitbit, and BlackBerry—were never really mature enough to pay a dividend. Apple, on the other hand, resumed its dividends in July of 2012. Since then, AAPL stock’s quarterly dividend rate has grown by more than 50%. (Source: “Dividend History,” Apple Inc., last accessed November 14, 2016.)
Apple is deeply entrenched in the smartphone business. And, despite intense competition from companies around the world, Apple still dominates the industry.
As a matter of fact, a recent report showed that Apple accounted for 103.6% of the smartphone industry’s operating profits in the third quarter of 2016. (Source: “Apple iPhone Grabs 104% of Smartphone Industry Profit in Q3,” Investor’s Business Daily, November 3, 2016.)
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It doesn’t seem possible to grab over 100% of the industry’s profits, but Apple managed to accomplish this because other vendors lost money. For instance, the report pointed out that LG and HTC were among the money-losers in the business. The second-place finisher in smartphone profits was Samsung, although its 0.9% share seems tiny compared to Apple’s dominance. (Source: Ibid.)
The reason behind Apple’s dominance is this: most people buy a smartphone because they need it, but many of those who buy an iPhone do so only because they want it.
No one really needs a $700.00 smartphone but, because they want it, they are willing to pay a premium for it. That’s why, despite being double or triple the price of many smartphones on the market, the iPhone still has a huge following around the world. Each time the company launches a new flagship iPhone model, people line up outside Apple Stores in order to be the first ones to get it.
JESHOOTS/Pixabay
Remember when Apple stock bears were saying that the “iPhone 7” wouldn’t be a success? As it turned out, consumers were still passionate about it. If you ordered a jet-black iPhone 7 or “iPhone 7 Plus” two weeks after its release, you would still wait up to two months before getting your hands on Apple’s latest smartphone. (Source: “Not even Apple was expecting its ‘boring’ new iPhone 7 to be this popular,” BGR, September 28, 2016.)
With demand exceeding supply on the launch of every one of its flagship products, Apple stands to generate solid profits year after year. And that should be reassuring for investors who are counting on Apple stock’s dividends.
The Bottom Line on AAPL Stock
Don’t forget, dividend investors of Apple stock now also have something else to look forward to: its booming services segment. Software and services don’t have to follow the same product update cycle as hardware products, and a lot of their revenue could be recurring. In the most recent quarter, Apple’s service revenue surged 24% year-over-year to an all-time quarterly record of $6.3 billion. (Source: “Apple Reports Fourth Quarter Results,” Apple Inc, October 25, 2016.)
In fact, Apple expects its services segment to reach the size of a Fortune 100 company in fiscal 2017. (Source: “Apple (AAPL) Q4 2016 Results – Earnings Call Transcript,” Seeking Alpha, October 25, 2016.)
Bottom line: AAPL stock might not carry as much upside momentum as before, but it has certainly become a stock worth having in a dividend investor’s portfolio.