If your investment goal is to build a portfolio that could produce sustainable income during retirement, it makes sense to seek out blue chip companies that have strong balance sheets, reliable dividends and a history of increasing their payouts.
A portfolio built on such stocks will most likely be able to weather recessions, withstand inflationary pressures, and weather the price bubbles that often occur as a result of loose monetary policies.
Companies that offer reliable and predictable dividends, along with long-term growth potential, can help generate income regardless of market turmoil.
Since it is a growth stock, Apple (NASDAQ:) is generally not considered a good choice for retirement portfolios. And unlike defensive sectors of the market, such as utilities, telecommunications and consumer staples, shares of the iPhone maker have limited appeal as a source of income for retirees given the meager yield in dividends of 0.6%. Additionally, its status as a tech company makes it a member of a highly volatile segment of the market that retirees often avoid.
Yet despite these drawbacks, there’s still a strong case for Apple as part of a diversified retirement portfolio.
Apple, in our view, offers a unique combination of benefits in the form of capital growth, increased dividends and a massive stock buyback plan, all of which could increase the total return of an investor. While Apple has increased its dividend by an average of 10% over the past five years, it has also repurchased its shares, providing additional value to stakeholders.
Apple authorized $90 billion in share buybacks last quarter, after spending $88.3 billion on buybacks in 2021, the biggest spend among U.S.-listed companies. Buy-and-hold long-term investors love buyback programs because they reduce a company’s share count and increase earnings, especially during turbulent times like the ones we’re facing right now.
Warren Buffett’s love for Apple
Renowned investor Warren Buffett, whose holding company Berkshire Hathaway (NYSE:) is one of Apple’s largest shareholders, has profited enormously from this trend. Buffett has built a $159 billion stake in Apple since Berkshire Hathaway began buying the shares in late 2016.
The 91-year-old investor is a fan of CEO Tim Cook’s share buyback strategy as it gives Berkshire increased ownership of every dollar of the smartphone and computer company each year. At BRK’s April shareholder meeting, Buffett said:
″…[W]We knew we’d hold an even bigger stake if they continued to buy their shares, which we didn’t have insider information or anything, but that would certainly seem the way to bet. They just reported their March quarter and, you know, they made more money and they had fewer shares outstanding.
With around $200 billion in cash, Apple is in an enviable position to easily increase its stock buyback program even further to prop up its stock.
The focus on the cash back program doesn’t mean that Apple lacks innovation and new ideas. Apple continues to have plenty of potential to surprise The Street despite the current difficult operating environment in which supply chain disruptions are hurting its manufacturing in China.
The Cupertino, Calif.-based company is betting on resilient demand for its devices due to its relatively wealthier customer base and the strength of its software and services ecosystem that is fueling hardware sales, Bloomberg reported this month. this.
AAPL also sees less competition now that fierce rival Huawei Technologies has been shut out of the markets. Huawei, once the top phone maker by shipments, has seen its revenue fall for six consecutive quarters.
At a time when investors are increasingly concerned about the economy and the performance of high-growth stocks, Apple is a defensive stock well-positioned to weather a potential downturn. Now more than ever, it makes sense to treat Apple as an ideal retirement stock for buy-and-hold investors.
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