Most of the time, when traders build a portfolio consisting of dividend stocks, they will compromise on growth. But if traders look closely, there are several growth stocks that can also be great dividend stocks. Maybe the best example is Apple, which is a stock that coincidentally might be a great investment idea for 2022.
The tech giant is dishing out heaps of free cash flow and paying a significant dividend, but it is also growing fast– and its large business growth looks set to continue for some time.
Apple’s seemingly attractive dividend
Apple’s dividend seems extremely durable and will likely continue growing. Supporting the company’s $14.5 billion in yearly dividend payments is $93 billion in trailing 1 year free cash flow. This means that only about 16% of the company’s free cash flow, or cash that’s provided by operations after capital expenditures are taken out, is paid out in dividends.
With a small portion of Apple’s free cash flow going back into dividends, this dividend is not only sustainable amid any challenges that may arise, but also might even continue rising. Apple’s most recent dividend raise was earlier in the year when the business increased its quarterly dividend payout by 7%.
The dividend boost was below the company’s normal average yearly dividend raise (closer to 10%), likely reflecting the uncertainty within the environment the business was operating in as logistical challenges and supply shortages were just beginning to surface in a large way. It is likely that Apple’s dividend growth rates in the future will be much closer to its historical growth rates.
A growth stock and a dividend stock?
The good thing about Apple is that its shares also have strong prospects for stock-price appreciation over the long term.
Despite Apple’s trailing-1-year revenue growth of 33% and its net earnings roaring 65% higher during this same time period, Shares of Apple is currently trading at just 31 times earnings. There is good reason to believe Apple will have more robust growth in the future, which makes this look like an even more conservative valuation.
For example, consider just one of Apple’s numerous growth catalysts which is its services business. Apple’s Gross profit from its services business in year 2021 was around $48 billion — which was up 31% year over year and accounted for almost a third of Apple’s total gross profit. Since this company segment grows consistently and is not very dependable on year-to-year product releases, there is no reason to think this segment’s contribution to Apple’s gross profit will slow down rapidly. Any deceleration will most likely be slow.
Of course, there are some other growth drivers, as well. In fact, Apple has had strong growth in every geographic and product segment — and Apple’s efforts in headphones, wearables, and smart speakers are just getting started.
Altogether, Apple’s fast business growth, strong dividend possibilities, and a conservative valuation help make the tech giant a great stock with a good chance at performing lucratively over the long term.
Author: Scott Dowdy