Many income-focused investors tend to spend a lot of time analyzing yields outside of the growth context of the given stocks or the underlying business model of the companies being assessed.
In my view, a dividend yield should accompany other key fundamental factors in assessing the worthiness of a given investment.
Too many times, a company may be considered as an income investment based on a higher-than-industry-average yield, however the underlying business model of said company may be lagging behind its peers, leading to a lower stock price and multiple compared with its competitors and a subsequently higher yield.
Growth companies tend not to focus on yield, instead typically ensuring that corporate earnings are reinvested back into its high-growth business model, where investors can typically get the highest rate of return on their invested capital.
That said, some of the largest growth businesses in the world, such as Apple, Inc. (NASDAQ:AAPL) do have a small (yet significant) yield that investors should pay attention to.
In the case of Apple, the company’s growth profile and business model, combined with the strength of the company’s balance sheet, have propelled this company to a market capitalization north of $800 billion.
With analyst target prices now coming in at above $200 per share, pegging Apple at above the elusive $1-trillion market capitalization mark, investors have traditionally focused solely on the capital appreciation prospects of Apple, giving little regard to the yield which has slowly and steadily grown over the past five years.
While the current yield for AAPL stock sits at 1.7%, an investor who bought Apple five years ago around the $75 level would now have a yield of approximately 3.4%. Getting the capital appreciation potential of Apple along with a free yield which has grown over time seems like a pretty smart long-term play, in my books.
