Much of the time, when investors build a portfolio of dividend stocks, they have to compromise on growth. But if investors look close enough, there are some growth stocks that are also great dividend stocks. Perhaps the best example -- and a stock that coincidentally may be a great investment idea for 2022 -- is Apple (NASDAQ:AAPL).
The tech giant is not only throwing off heaps of free cash flow and paying a substantial dividend, but it's growing very rapidly -- and its robust business growth looks poised to persist for some time.
Image source: Getty Images.
Apple's attractive dividend
Apple's dividend looks extremely durable and likely to grow. Supporting Apple's $14.5 billion in annualized dividend payments (translating to a 0.5% dividend yield based on the stock's share price today) is $93 billion in trailing-12-month free cash flow. This means only about 16% of Apple's free cash flow, or cash provided by operations less capital expenditures, is paid out in dividends.
With such a small percentage of Apple's free cash flow going to dividends, this dividend can not only be sustained amid unexpected challenges, but also could even continue increasing. Apple's most recent dividend increase was earlier this year when the company boosted its quarterly dividend payment by 7%.
The dividend increase was below the company's typical average annual dividend increase (closer to 10%), likely reflecting the uncertain environment the company was operating in as supply shortages and logistical challenges were just starting to surface in a big way. It's likely that Apple's dividend growth rates in future years will be closer to the company's historical growth rates.
While Apple's dividend yield may be low, the company makes up for it with strong dividend-growth prospects. Not only does Apple have a history of robust dividend increases, but it also has the cash flow to support more strong growth in payouts.
A dividend stock and a growth stock?
The great thing about Apple as a dividend stock is that shares also possess strong prospects for share-price appreciation over the long haul.
Image source: Apple.
Despite Apple's trailing-12-month revenue growing 33% and its net income roaring 65% higher over this same time frame, Apple shares trade at just 31 times earnings. There's good reason to expect more robust growth from Apple in the coming years, which makes this valuation look even more conservative.
To illustrate, consider just one of Apple's many growth catalysts -- its services business. Gross profit from Apple's services business in fiscal 2021 was about $48 billion -- up 31% year over year and accounting for nearly a third of the company's total gross profit. Since this business segment grows fairly consistently and isn't very reliant on year-to-year product launches, there's no reason to expect this segment's contribution to the tech-giant's gross profit to decelerate rapidly. Instead, any deceleration will likely be gradual.
Of course, there are other growth drivers, too. In fact, Apple has been seeing strong growth in every product and geographic segment -- and Apple's efforts in wearables, headphones, and smart speakers are arguably just getting started.
Altogether, Apple's strong dividend potential, rapid business growth, and conservative valuation make the tech giant a very attractive stock with a good shot at performing lucratively over the long haul.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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December 26, 2021 at 08:05PM
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