Is Apple a top dividend stock?

Apple $AAPL has been considered a growth stock for most of its existence. Many investors who acquire it for their portfolios still believe this to be the case because the company - despite being a huge entity - often posts double-digit increases in key fundamentals.

Recently, however, Apple has given investors a relatively generous dividend increase. Perhaps because of that, the company is a solid dividend stock. Here's a little research

Big Earnings, Big Spending

Let's get the details straight and provide some context. Simultaneous with the second-quarter fiscal 2023 results released in early May, Apple announced a new quarterly payout of $0.24 per share. This dividend increase shrugged off a 4% improvement over its predecessor's $0.23 per share. (Incidentally, this wasn't the only move the company made to please shareholders; it also launched a $90 billion share buyback program).

No one should worry about whether Apple can afford the additional dividend expense or the new stock buyback fund. In this quarter alone, it generated operating cash flow of nearly $29 billion. These days, it issues about $3.7 billion in dividends each quarter.

We also need to define the term dividend stock. All things being equal, these stocks deliver a regular dividend yield that is equal to or higher than the average of a representative group of dividend-paying companies. Currently, the average yield of the S&P 500 is just under 1.7%. It also helps significantly if a company agrees to increase its dividend at least once a year.

The companies that are most easily identified with dividend stocks also tend to be well-established companies with moderate growth but very strong and reliable free cash flow (FCF).

Does Apple meet this requirement? Well, not quite. That FCF is certainly massive. The company not only sells the consistently popular iGadgets suite and has thriving (albeit relatively marginal) businesses in other hardware like desktops and laptops, but it also makes a lot of money on its App Store. So we'll put a check mark next to this criterion.

As for revenue, that's a different story. From that perspective, Apple is not very impressive. Its yield is currently more like 0.6%, well below the aforementioned S&P 500 benchmark. So while Apple's yield is in line with the often stingy tech industry, it's a good deal lower than classic dividend stocks like Coca-Cola (2.9%), McDonald's (2.1%) and 3M (a massive 6%).

Finally, by these two other measures, Apple doesn't match traditional dividend stocks. It's still a relatively growing company, as noted above, and while it has a number of revenue streams, it remains dependent on consumer fashion and trends.

If, for example, an Android phone maker comes up with some groundbreaking patented technology that surpasses anything the iPhone can do, sales of these devices may evaporate for Apple. By contrast, no one has yet come up with, say, a "Coca-Cola killer" or a better Big Mac for the mass market.

Finally, as for dividend increases, Apple is unquestionably a company that likes to raise dividends - with this latest increase, it has raised its payout for 11 years in a row (since it was renewed in 2012). However, this history pales in comparison to that of the most well-known dividend stocks. Again, using Coca-Cola and McDonald's as examples. These two giants have current streaks of dividend increases that are 60 and 46 years long, respectively.

So no, in my opinion, Apple's recent dividend increases have not made it a top dividend stock. On that basis alone, it is not a compelling investment.

But that doesn't mean it's a bad stock, of course. Quite the opposite.

Apple is doing an admirable job of refreshing its product lines, with the iPhone being one of the best and most advanced phones on the market, despite the brand's age (nearly 16 years). More devices on the market means more purchases through the App Store, so service revenue is growing too. Apple is also not afraid to enter new, potentially fast-growing business ventures such as computer chips.