Over the past few months I’ve been increasing my stake in Apple. If you recall, many months ago, I expressed concern over Apple and their reliance on one product line. Like Apple, BlackBerry was the king of smartphones back in 2008. Unfortunately, like many tech companies, BlackBerry relied too heavily on one product line and paid dearly from 2010 forward. Tech companies are more prone to disruptions than ever as the rate of innovation accelerates. However, Apple is shaping up to be a more diversified company. Even if iPhone demand begins to stagnate, Apple has some strong growth drivers.
For instance, Apple’s service revenue nearly tripled since 2013 and is expected to grow 15% annually for the next few years. Apple services include iTunes, iCloud storage, Apple music subscriptions, Apple Care, and paid apps. These services allow the company to make an additional $140+ per device it sells. This metric is incredibly important as the smartphone market becomes more and more saturated. Apple’s powerful brand essentially allows it to milk loyal customers for years after an initial purchase. Therefore, if a customer pays $760 for a phone and $140 for services then they are earning $900 per customer.
To succeed, the company simply needs to continue expanding its services line. The sky is the limit, given the company’s strong presence in their customer’s daily lives. Purchasing an iPhone is only the beginning of the relationship. For example, with the development of Apple Pay, will we need credit cards anymore? Going further then that; will we need wallets anymore? There’s even a rumor Apple will launch its own video streaming service to compete with Netflix. All this on top of its already highly innovative hardware products, a $100 billion buyback program, and a 16% dividend increase.
The company is quickly approaching a $1 trillion market cap and is already the most valuable company in the world. And just its services revenue alone ($35 billion) rivals that of Facebook ($40 billion), Netflix (12 billion), and SAP (28 billion). My only issue is the low 1.55% dividend yield as I tend to lean towards immediate income in my personal investments. That being said, Apple continues to award shareholders with double digit dividend increases. If these payments continue to grow at this pace, Apple’s dividends are likely to blow past dividend stalwarts like Coca Cola, P&G, and 3M. Apple could very well be a solid dividend growth company.
DISCLAIMER: I am long on Apple stock. I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.