Generally speaking, growing companies tend to avoid dividends, opting instead to funnel any excess cash back into the business. However, that doesn’t mean it’s impossible to find dividend-paying growth stocks.
For instance, Warren Buffett’s Berkshire Hathaway owns stock in Apple (NASDAQ:AAPL) and Mastercard (NYSE:MA), and both companies pay quarterly dividends while still having solid prospects for future growth. Here’s what investors should know.
Apple has built a consumer electronics empire. From Macs and iPhones to the Apple Watch and AirPods, the company’s hardware rarely fails to captivate its customers. In fact, Apple had a worldwide installed base of over 1.65 billion devices as of its fiscal 2021 first quarter, and that number is likely to climb with the recent launch of its M1-powered iMac and iPad Pro.
So what’s driving that popularity? One of Apple’s greatest advantages is iOS, the operating system that powers its mobile devices. Unlike Android, iOS is closed-source, meaning no third party can install it on their own hardware to create a cheaper “Apple-like” experience. In other words, if you want the Apple experience, you have to pay for it.
That advantage allows Apple to charge a premium for its products. For instance, the average iPhone sold for $873 in the fourth quarter of 2020. By comparison, the average Android smartphone sold for $250 last year. That pricing power has been a tailwind for Apple’s business.
Not surprisingly, the company has delivered solid financial results over the long term.
Since 2016, Apple’s share price has surged over 375%, but shareholders have also benefited from regular dividend payments. Currently, the quarterly payout sits at $0.22 per share, but that figure has gone up every year since 2012. And with Apple’s strong balance sheet, investors should expect that trend to continue.
Moreover, I think Apple stock is poised to beat the market in the coming years. Its high-margin services business is gaining momentum, and the company reportedly has at least two augmented reality (AR) products in the pipeline, including a pair of AR glasses. Given Apple’s past success with such hardware, I wouldn’t be surprised if both of these products were big winners.
The company is also developing an autonomous electric vehicle (EV): the so-called Apple Car. In fact, a recent article from Reuters suggests that this AI-powered EV may launch as soon as 2024.
As a final thought, Apple is Warren Buffett’s largest holding, representing 40% of Berkshire’s portfolio. If the Oracle feels comfortable owning that much Apple stock, I think any investor should consider adding a few shares to their portfolio.
Mastercard’s platform connects consumers, merchants, and financial institutions, facilitating electronic payments in over 210 countries and territories. In 2020, the company handled 24% of all card-powered purchase transactions, making Mastercard the third largest payments network in the world.
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