Are Vanguard And Others Crazy To Exclude Apple ($AAPL) In Their Dividend Funds?

By: ispeculatornew
Date posted: 08.30.2012 (5:00 am) | Write a Comment  (2 Comments)

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Did you know that many of the top dividend ETF’s and other dividend funds do not hold Apple in their fund? You might think that’s normal since the tech giant just recently started paying dividends. What if I told you that the technology sector is now the highest paying dividend component of the S&P500?

Apple (AAPL) pays a fairly low dividend yield but it is still the top dividend payer in the US (in terms of money being paid out to investors). That seems like it would justify a place in most dividend ETF’s don’t you think? The problem of course is that many of these funds have pre-defined filters to determine what stocks to hold. In cases like Vanguard’s VIG, the fund looks for stocks that have long histories of paying and increasing their dividend payouts. Other funds track dividend aristocrats or other long time paying dividend stocks. Suppose that a fund like VIG only adds names that have been paying dividends for 5 or 10 years. By then, Apple might end up being the most successful dividend stock by very far. This is certainly a good example why building my own dividend portfolio (such as the USDP) is likely to do very well over the long term.

Why Are These Funds Doing This?

The fund managers try to make it easy for investors to understand what they’re buying, to be as assive as possible, etc. That’s all good and fine but it’s very imperfect. If you want stocks that have been paying and increasing dividends for long periods of time, that probably means that you’d like stocks that:

-Have solid underlying businesses
-Will be able to sustain long term dividend payouts and increase them over time

I can’t think of many companies that are in a better situation than Apple in those regards. The company has been doing extremely well, has bigger cash reserves than anyone in the street and could easily afford to pay those payout for years even if the business growth slowed down significantly. To give you an idea, Apple is currently paying a quarterly dividend of $2.65. The last time the company made less than that in a quarter was in 2009!! This year, earnings are expected to be lowest in the next quarter at an estimated $8.42 EPS. That is nearly 3 times as much. And I’m not even counting on the cash reserves of $100B…

As you could see, even if Apple increase that payout by 3-4% per year, it could likely afford to pay its dividend without any issues. This is without question another example why building your own dividend portfolio, when possible, can end up helping you a great deal. What are your thoughts? Would you include Apple in a dividend portfolio?

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2 Comments

  1. Comment by Stephen — August 30, 2012 @ 10:17 am

    When Apple announced they are going to pay regular dividends I got super excited. It definitely belongs in my dividend portfolio. Now I want Google to start paying dividends.

  2. Pingback by Dividend Hit Time — August 31, 2012 @ 4:00 am

    […] 2. Are Vanguard And Others Crazy To Exclude Apple ($AAPL) In Their Dividend Funds? @ IS. […]

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