Key Points
Apple may deliver much more value via price appreciation than via dividends.
Its shares seem somewhat overvalued at recent levels.
If you're looking to invest in dividend-paying stocks for that sweet passive income, good for you! Dividends are a great way to collect cash without having to sell any stocks -- and that cash can help support you or can be deployed to buy more shares of stock. If you're considering investing in Apple (NASDAQ: AAPL), that also seems like a good thing to do.
But what if you're hoping to get $12,000 in annual dividend income from Apple? How many shares would you need to buy -- and what would they cost you? Let's see.
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It's just a matter of some simple math. Apple was recently paying a quarterly dividend of $0.27 per share, amounting to $1.08 annually. So divide the $12,000 you're hoping for by $1.08, and you'll arrive at 11,111 -- the number of shares you'll need to own. Now multiply that by the stock's price per share -- recently $325 -- and you'll see how much those 11,111 shares will cost. You might want to sit down now. The answer is: $3,611,111.
Here are some things to consider:
- You might not want to invest in Apple right now, because its shares are, arguably, somewhat overvalued. For example, the recent forward-looking price-to-earnings (P/E) ratio is 32, a bit above the five-year average of 28.
- Apple's recent dividend yield is low, at 0.33%, but it's growing. So if you can only afford to buy, say, 100 shares, your puny dividend income from that -- $108 per year -- will grow over time. Apple's dividend has averaged annual gains of 4.2% over the past five years and 6.7% over the past decade.
- Apple may deliver much more in price appreciation over time than in dividends. Its shares have averaged annual returns of 24% over the past 15 years.
- You might just invest in Apple (when the valuation is appealing) for Apple alone, and look elsewhere for dividend income. Perhaps consider an excellent dividend-focused ETF, like the Schwab US Dividend Equity ETF (NYSEMKT: SCHD).
Selena Maranjian has positions in Apple and Schwab U.S. Dividend Equity ETF. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.