Dear DTA,
I’ve read some of your recommendations, but I want something I can afford. Apple? No way!
-Joe S.
Hi, Joe.
Thanks for your readership. And thanks for writing in.
So keep in mind that we simply aim to provide high-quality, free content here that’s designed to potentially help people make more educated investment choices.
These are simply ideas we’re sharing. Nothing is a specific recommendation for a specific person.
In regard to Apple Inc. (AAPL), it may or may not be a good investment for you or anyone else.
But I’m a shareholder (via my FIRE Fund).
A happy shareholder, at that. The stock has appreciated considerably since I started buying. More importantly, the company continues to send me a growing chunk of their growing profit, via cash dividend payments.
And Warren Buffett, who is arguably the greatest investor of all time, has been buying up the stock like crazy over the last couple years.
As you can see in the common stock portfolio that Buffett oversees for Berkshire Hathaway Inc. (BRK.B), Buffett has gone from $0 in Apple holdings to over $50 billion in less than three years.
With Apple engaging in the largest corporate stock buyback in history, and with Berkshire buying up billions of dollars in stock, there’s a pretty solid floor on shares.
So you have a pretty good case here for both capital appreciation and capital preservation.
It’s a low-risk play on a global megatrend (smartphones).
And since the buybacks lead to considerably less shares outstanding, this gives Apple even more firepower to increase their dividend payments to shareholders.
You’ve probably noticed I’ve mentioned the word “dividend” twice.
That’s because I’m a dividend growth investor who was able to become financially independent and retire in my early 30s by living below my means and investing my excess capital into high-quality dividend growth stocks.
Dividend growth investing completely, radically, and positively changed my life.
I’ve even publicly shared how this strategy “saved” my life by publishing my Early Retirement Blueprint, which is a step-by-step guide that just about anyone can follow to an early retirement.
A major component of the Blueprint is, of course, dividend growth investing – a strategy that involves buying up shares in high-quality, world-class businesses that have great fundamentals, competitive advantages, and longstanding track records of paying out rising dividends to shareholders.
You can find more than 800 dividend growth stocks by checking out the Dividend Champions, Contenders, and Challengers list, which has invaluable data on US stocks that have raised dividends each year for at least the last five consecutive years.
However, I think it’s important to clear something up very quickly.
Your comment indicates that you’re put off by Apple’s high stock price. As of this writing, it’s trading hands for over $225/share.
But a stock’s price actually matters nil without the context that a stock’s value provides.
As Buffett has said:
“Price is what you pay, value is what you get.”
What this means is that a $225 stock could be cheap, while a $2 stock could be expensive.
That could happen if the $225 stock is worth more than $225, and if the $2 stock is worth less than $2.
If someone asks me to pay $500 for a stock that’s worth $1,000, you’d better bet I’m all over that. To buy a dollar for 50 cents is an investor’s dream.
Likewise, if someone asks me to pay $5 for a stock worth $1, I’m quickly taking a hard pass on that. Paying $1 for 20 cents is a fast track to becoming poor.
It all comes down to what something is actually worth.
Value gives context and meaning to price.
For further perspective on that, fellow contributor Dave Van Knapp put together a fantastic series of articles that discuss dividend growth investing with great depth.
These are his Dividend Growth Investing Lessons, although many of these “lessons” can be applied to investing as a whole (not just dividend growth investing).
One of the articles in that series focuses specifically on valuation, which will add a lot of color to our discussion today.
Furthermore, I personally write an article every Sunday that highlights a compelling dividend growth stock that appears to be undervalued at the time of publication.
These weekly articles can shed additional light on how important valuation is, and how it should be separated from price.
Those articles make up the Undervalued Dividend Growth Stock of the Week series.
So if you’re looking for truly affordable stocks to purchase, that series is a great resource.
I believe it would behoove you to become more familiar with what value means, how to go about estimating intrinsic value, and how it impacts an investment over the long run.
You say you can’t afford Apple, Joe.
Well, I say you can’t afford $2 stock that is worth much less than two dollars.
It’s not about a stock’s sticker price; it’s about what that stock is actually worth.
There’s no time like today to better educate yourself as an investor and start building a better financial future.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.