It's easy to assume that a typical Warren Buffett dividend stock would be some stodgy value stock. Not that there's anything wrong with that -- Coca-Cola has minted its fair share of millionaires. But "stodgy" probably isn't a word you would use to describe Apple ( AAPL +1.63% ) .
Ironically, Apple is Berkshire Hathaway 's largest position and one of Buffett's crowning achievements from a legendary career. Many dividend investors lean toward higher yields than Apple's 0.3%, but here's why dismissing the tech giant as a bona fide dividend stock might be a huge mistake.
Apple's ecosystem should continue driving profits and dividends higher
People love their iPhones. The brand moat of Apple products is the basis for Buffett's fascination with the company. Of course, Apple's hardware ecosystem goes far beyond phones, including wearable accessories, tablets, and computers.
Apple complements its hardware with an array of subscriptions and a massive app store. Both generate recurring, high-margin revenue for Apple. It's the secret sauce that has made Apple one of the world's most profitable companies.
Most people tend to stick to Apple devices once they get used to them, upgrading their devices every so often.
The company has taken some interesting steps recently to broaden its appeal to a wider range of consumers. Its new entry-level laptop, the MacBook Neo, has been a big hit. Apple has also introduced leasing programs to lower the financial hurdles to entering its ecosystem.
Despite Apple's massive size, there's still growth potential. Analysts expect the company to grow earnings by an average of 13% annually over the next three to five years. The dividend yield is small, but the payout is still just 12% of 2026 earnings estimates. There's plenty of room for that dividend to go higher.
How Apple's buybacks can actually help dividend investors
Some may point out that Apple spends a ton of its profits on buying back its own shares . In fact, the company has spent $82 billion on buybacks over the past four quarters alone, and has lowered its share count by 31.5% over the past decade.
That shouldn't turn dividend investors away. A lower share count inflates the company's per-share profits. The connection most people make is that higher per-share profits mean a higher share price, and they often do.
They also mean Apple can pay a higher per-share dividend with the same total cash it spends. In other words, the buybacks help Apple grow its dividend faster than its actual dividend payout ratio would suggest. It's an advantage that few companies can claim.
Consider that when deciding whether to slot Apple into your dividend stock portfolio.