With a market cap well above $2.5 trillion, some investors might wonder whether any fuel is left in Apple‘s (NASDAQ: AAPL) growth tank. The company has delivered market-beating returns in the past 15 years, but the unveiling of new iPhone models has lost much of its appeal, and the company’s innovative smartphone remains its biggest cash cow. At least, that’s what the bears say.
There is some legitimacy to this argument, but there are also good reasons to believe that Apple is still an excellent pick for growth investors, or income seekers for that matter. Let’s find out why.
AAPL total return level data by YCharts.
Apple still has multiple paths ahead
While it is true that the iPhone no longer garners the same kind of buzz it did when it first came out a little over 15 years ago, it continues to generate impressive sales even after all this time. In the third quarter of Apple’s fiscal year 2023, ending on July 1, iPhone sales came in at $39.7 billion.
That was a decline of a little more than 2% year over year, but given the still-challenging economy and the fact that Apple’s devices are very expensive, what’s surprising is that the iPhone can rack up tens of billions in sales in a quarter at all — not that its revenue dropped 2% year over year.
The secret to Apple’s success: The company’s brand name is one of the most valuable in the world. That’s why the company’s customers continue to buy its costly gadgets. It’s also why Apple now has an installed base of over 2 billion devices.
That deep and loyal ecosystem provides many opportunities. Its growing fintech business offers a digital wallet; buy now, pay later services; a credit card, and a high-yield savings account.
The services segment also features video and music streaming, an app geared toward helping people be more active, a premium gaming service, and more. Whatever the lineup currently is, investors shouldn’t lose sight of the most important thing: The large ecosystem provides many growth options as long as the company finds new ways to monetize its audience.
One sector where it sees significant untapped potential is in healthcare. The company’s AirPods feature a hearing-aid option, the Apple Watch has several health-related features, including heart rate monitoring, and the company is also looking to turn that device into a continuous glucose monitoring device for diabetes patients.
Apple’s knack for innovation, its successful addition of its own spin on existing technologies, and its ability to generate tons of cash it can invest into R&D mean the possibilities are practically endless. It might take a while before Apple can entirely replace its iPhone segment, but its services unit has been growing steadily and is its second largest in sales (it still trails the iPhone by some distance).
In the company’s third quarter, services sales came in at $21.2 billion, an increase of about 8% year over year, while total sales declined by about 1% year over year to $81.8 billion. So the services segment is precisely why the company can continue to grow for years.
The dividend looks secure
Apple doesn’t have the most competitive dividend yield — it’s only 0.56% compared to the S&P 500‘s 1.54%. But the company’s payouts have more than doubled in the past decade, and its cash payout ratio is a highly conservative 14.8%.
Apple could afford to substantially raise its dividend at these levels without worrying about running out of cash for years. In other words, investors can bet the farm on the tech company to continue rewarding shareholders with dividend hikes.
Lastly, a dividend-paying company’s underlying business — above its yield or payout ratio — is the most important thing to consider. On that front, investors have nothing to worry about. Apple’s track record of consistent financial results — with growing revenue, earnings, and cash flow — and the growth avenues available paint a healthy picture of its operations.
AAPL revenue (quarterly) data by YCharts.
Apple isn’t known primarily as a dividend stock, but it should be near the top of the list for income seekers, including those looking for “forever” stocks.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 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.
