Ah, yes. The stock everyone LOVES to talk about and the stock that has been driving everyone to buy, regardless of the share price. Apple (AAPL) has been a stock that new and current investors have been buying throughout 2020. Apple stock has had a share price skyrocket and then, ultimately the stock split at the end of August. The Apple stock split allowed the price to look better-priced for other investors who may have thought it “looked” too expensive.

We are dividend investors here and dividend investors in this community. The question of – is Apple Stock one for a dividend investor’s portfolio? – has occurred more frequently than not. I decided to run through and perform an Apple stock analysis to formulate my response to that question!

I know, we spent many years not talking about Apple stock, but I thought – given the increase in the press about investors picking up shares relentlessly, that I had to put an article out from a dividend investor’s standpoint.

As a dividend investor, the questions we ask are – is the dividend safe? Does Apple increase the dividend at a pace that matches their dividend yield? Is Apple’s stock fundamentally undervalued? Can Apple provide a steady stream of passive income, in the form of dividend income, on your pursuit of financial freedom?

Those are the key & critical questions that dividend investors ponder. However, maybe those are just my thoughts and questions I have when debating about adding Apple stock to my dividend portfolio, or, any stock for that matter.

Apple stock dividend metrics

This wouldn’t be a deep dive without putting Apple (AAPL). For those that do not know the critical dividend metrics we use, we keep it simple with 3 dividend stock metrics:

1.) Price to Earnings Ratio: Below the industry / S&P 500 on average and/or competitors.

2.) Dividend Payout Ratio: The sweet spot range is 40%-60%, preferring to see the ratio below 60%.

3.) Dividend Growth: We want to see a history of dividend growth, with a dividend growth rate that coincides with the dividend yield the stock currently produces.

Price to Earnings Ratio

In fact, analysts are projecting earnings in 2021 of $3.87, a steep increase of 20% from the expected earnings in 2020. Analysts are definitely confident in how Apple (AAPL) can surge in earnings in a post-pandemic time period. Further, their product line of MacBooks, iPads, Apple watches, and the significant expected growth in Apple TV+ is pushing those expectations through the roof.

Given Apple’s share price of $112.00 per share as of September 11, 2020, the forward price to earnings ratio is 28.94. The historical price to earnings ratio for Apple stock has been in the 10-20 range for the better part of the last decade.

The price to the ratio for Apple’s current stock price appears to still be significantly higher than where they usually trade at. How do they compare to the broader S&P 500 stock market?

Well, the broad market, aka the S&P 500, stands at a price to earnings of 28.72. Therefore – doesn’t this look very familiar? Yes! Apple stock trades pretty much at the same multiple of earnings, as the S&P 500. Surprising? No, not really, since Apple’s stock makes up almost 10% of the S&P 500 (which is almost $30 trillion in market capitalization).

Dividend Payout Ratio

Now that their stock split is in play, their dividend is $0.82 per year, instead of per quarter. Due to the stock split, you take their quarterly or annual dividend and divide by 4.At a forward earning project of $3.87, Apple’s dividend payout ratio is very small, actually, at 21%

What does this mean for investors and, specifically, dividend investors? Apple is still in its growth phase and still has ample room to continue increasing its dividend. Apple’s dividend safety is incredible, in fact. Even if earnings were slashed in half, their payout ratio would be less than 50%.

Dividend Growth

Now, Apple hasn’t been increasing their dividend for too long, first introducing a dividend in 2012. However, Apple has been steadily increasing that beautiful passive income stream to investors I’d say! Not significantly high dividend growth, but definitely in the moderate range.

From the chart below, you can see the incremental step each year. Apple’s last 5 dividend increases have been in the mid-single digits to the mid-double digits.From 2016-2020, the dividend growth rates have been: 9.6%, 10.5%, 15.9%, 5.5% and 6.5%.The average 5-year dividend growth rate is 9.6%.

Apple is going for that double-digit year, dividend increase mark and they aren’t too far away. Given their dividend payout ratio and that they’ve moderately grown their dividend, dividend growth should be in the 6%-12% for the foreseeable future for Apple. A good sign to potentially add Apple Stock to a dividend investor’s portfolio.

Upcoming Apple Event

Further, there is the Apple Event – September 15, 2020. The rumor mill and expectations are swirling on the apple products. Products such as the next-generation Apple Watch, Apple iPhone, and potential Apple iPad.

Compliments of Macrumors – Apple has an event every mid-September for new product launches!

Given there are numerous products and updates coming in, investors are eager to see what the reaction is from the consumer market.

First, they have the physical updates on their Apple iPhone 12, iPad Air, Apple Watch Series 6, Apple’s Homepod (aka their take against Amazon Echo) potential new headphones, and a potential low-cost iPad.Talk about a layer of products for either one individual to buy them all, if they upgrade frequently, or one product that could fit so many different people.

Next, this can be a sneak peek at how their current products are doing and gives them a chance to advertise their subscription services across the devices. You know Apple is going to showcase what watching Apple TV+ is like on an iPad and listening to Apple Music with new Apple headphones or from the new Apple Homepod will be.

Lastly, I am sure the Apple stock price will surely rise throughout the duration. Investors will be glued to the presentation and run the numbers, once the price tags are unveiled, as well as reviewing consumer feedback from what they are viewing. This should be an INTERESTING day for Apple stock, to say the least.

These releases could stand to benefit Apple if the products touch the cylinders that consumers want, providing the jolt to the Apple financial statements by way of increased revenue, cash flow, and… dividend increases!

Is Apple stock for dividend investors or not?

Apple is a stock that is more than likely already in your dividend portfolio. How? Well, if you own Vanguard’s S&P 500 ETF (VOO) or any other ETF that contains the largest companies or high dividend growth.

In addition, many dividend investors acquired shares of Apple stock when they once yielded 1.60%+ a few years ago. DANGIT! It’s the old, “coulda, shoulda, woulda”, statement.

Apple’s dividend safety is gracefully intact and they are building a strong case of dividend growth history. However, the combination of yield and price to earnings does not sit well as a dividend investor right now.

It’s one thing to acquire stock with a low dividend yield, and the price to earnings ratio is below the market, with a large dividend growth rate. However, Apple’s stock currently trades at almost 30x earnings with < a 1% dividend yield, and the last two years of dividend growth have been below 10%.

Given that Apple’s stock price is over $112 per share, I don’t think that is the price for me. I do love Apple as a company, I mean – who wouldn’t? Consistent cash flow, annual product refreshes, and, plus, they have MANY subscription-based products out there. Subscription products such as Apple Music, Apple Cloud storage, and Apple TV+, to name just a few. The consistent cash flow fuels their income statement and fills up their cash levels on the balance sheet, that’s no doubt.

Now the question another may ask, what price would Apple stock need to be, in order for me to consider? I’ll try to make that answer as easy as possible, remember this is a dividend investor’s perspective.

Given Apple is near 29x earnings, I brought in Microsoft (MSFT) into the equation. Microsoft trades at a forward 31x earnings, actually, so Apple shows slight undervaluation there. However, the price to earnings is right at the market.

Therefore, I would like to see Apple’s stock price at $100 per share or a ~15% market correction to its price. Why? At $100 per share, their dividend is just over a high yield savings account. In addition, they start to near 25x earnings instead of closer to 30x earnings. From a valuation standpoint, that feels better.

What do you think? Already own Apple stock and looking at add? Have you been on the investing sideline like me and have been waiting on the “right” time to buy their stock? Please share your thoughts, comments, and feedback below! As always, good luck and happy investing!