If I Bought Apple Stock In 2001
What if I bought Apple stock in 2001? There are two types of errors as a small investor when investing in stocks. The first are errors of commission. These are straight forward to understand. You made a decision and then something went wrong with your investment. You committed the error. There are also errors of omission. You elected not to make an investment in a stock and that stock does extremely well. This is more along the lines of opportunity costs. There are always many stocks that fall into this category. For me Apple was one such stock in about 2001. Since I tend to buy and hold, our net worth would certainly be higher than now. Still, most if not all investors make errors of omission, it is part of being a small investor.
But thinking about Apple stock got me thinking instead about what if I had bought Apple stock in 2001 instead of my Apple computer.
Buy an Apple Computer or Buy Apple Stock?
I bought my first Apple laptop about 20 years ago. There were some interesting characteristics to the laptop. It was a Powerbook Titanium G4. The laptop weighted a ‘ton’ at least by today’s standards. The chipset was from Motorola whose chip division later became Freescale. Freescale was acquired by NXP Semiconductors N.V. (NXPI) in 2015. I liked the computer since it had a nice design and was just easy to use. I cannot remember the exact price with the peripherals and other items I bought and I do not have the receipt, but it was somewhere between $2,500 and $3,000.
At the time, I was starting to buy stocks and thought hard about buying Apple stock. I did not and obviously my net worth is likely less. It is hard to say how much less since I used that money to buy other stocks. I did not buy Apple stock since the computer world was dominated by MS Windows and Intel (INTC). You have to think back to that time and remember that Google (GOOG) had not yet had its IPO and Amazon (AMZN) was a blip with a net loss in 2001. In addition, it was not clear if Steve Jobs and Apple would succeed or not. Indeed, there were many other tech companies that were doing much better at the time despite the dotcom bust. Stock prices were down but many of these companies were still very profitable. You would have needed a leap of faith to buy Apple stock at that time despite what is seemingly a no brainer in hindsight today. Indeed, by not pulling the trigger and buying Apple stock may have been a manifestation of myopic loss aversion.
If I Bought Apple Stock in 2001 – How Much Would I Have?
If I had bought $10,000 of Apple stock in 2001 how much would I have? I did not really have $10,000 to invest in Apple at the time. I had maybe about a few thousand to invest. But for arguments sake and to make the math simpler let’s look at $10,000. We make the assumption that I bought the shares at mid-year in the first trading day in July 2001 and that the dividends were reinvested. Apple started to pay a dividend again in 2012 after last paying a dividend in 1995.
By yesterday, you would have over 27,200 split-adjusted shares that are trading at $134.16 per share. Your total return would be a mind-boggling 36,126% and your average annual total return is 34.66%. Your $10,000 has turned into over $3,624,754.18. Not bad to say the least.
If I Bought Apple Stock in 2001 – What is My Annual Dividend?
Apple currently pays a forward dividend of $0.82 per share annually. If you have 27,000 shares, then your annual dividend is over $22,000. This is obviously great since your annual dividend is now equal to your initial investment. This is for an extremely safe dividend where both earnings and free cash flow cover the dividend. The forward payout ratio is under 20%. Furthermore, Apple has a net cash position on its balance sheet and generates tens of billions of dollars in free cash flow per year.
Final Thoughts If I Bought Apple Stock In 2001
Obviously, it is unlikely that Apple will generate the kind of returns it did over the past 20-years. So, if I bought Apple stock in 2021 will likely not be the same as if had bought Apple stock in 2001. Apple will probably continue to be a successful company on the strength of the iPhone, its laptop, iPads, Apple Pay, iTunes, and so on. That said, I doubt that we will see an over 36,000% total return in the coming 20 years. However, that does not mean that Apple is not a good investment today at the right price. Apple has solid dividend safety and its core product, the iPhone, seems to have staying power. In fact, Apple is evolved into one of the largest dividend payers in the US. Furthermore, Apple and other big tech companies have largely showed the the COVID-19 pandemic does not matter to them and pushed revenue and earnings higher. Apple is not particularly undervalued right now trading at 30X consensus 2021 earnings. But if the company beats top and bottom line estimates by 15% to 20% like last quarter then the consensus may be too low. As you are well aware, earnings drive dividend growth and returns.
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Chart or Table of the Week
Today I highlight Apple (AAPL), which I am long. The company and the stock are extremely well-known. Apple is well-known due to its products, especially the iPhone. The iPhone is the No. 1 smart phone in the world in terms of market share. The stock has provided outsize returns for many investors. The company is rapidly growing sales and net income due to the iPhone, Macs, iPads, and other hit products such as the AirPods. Some competitors, such as LG, are dropping out of the smart phone market all together. Apple will likely pick up a good chunk of LG’s market share. Apple Pay is also growing rapidly and makes up a staggering 1 in 20 of global card transactions. Apple reportedly makes 0.15% of each purchase. Sales for Apple Pay in 2021 are more than double that of 2011 and continue to grow. Apple is a Dividend Challenger with 8 years of consecutive annual dividend growth. The screenshot below is from Stock Rover*.
Dividend Increases and Reinstatements
Proctor & Gamble (PG) hiked the dividend 10% to $0.8698 from $0.7907 per share quarterly. The forward yield is 2.3%. This is the 65thconsecutive annual increase. Proctor & Gamble is a Dividend King and Dividend Aristocrat. You can read about Procter & Gamble: Recession Resistant Dividend Aristocrat.
Costco Wholesale (COST) increased the dividend 12.9% to $0.79 from$0.70 per share quarterly. The forward yield is 0.75%. This is the 16th yearly increase in a row. Costco is a Dividend Contender.
Dividend Cuts and Suspensions List
I updated my dividend cuts and suspensions list at end of March. The number of companies on the list has risen to 518. We are well over 10% of companies that pay dividends having cut or suspended them since the start of the COVID-19 pandemic.
There were no new companies to add to the list this past month (March 2020).
Dow Jones Industrial Averages (DJIA): 34,202 (+1.19%)
NASDAQ: 14,052 (+1.09%)
S&P 500: 4,186 (+1.39%)
Market Valuation – If I Bought Apple Stock In 2001
The S&P 500 is trading at a price-to-earnings ratio of 42.6X and the Schiller P/E Ratio is at about 37.6X. These two metrics up in the past two weeks. Note that the long-term means of these two ratios are 15.9X and 16.8X, respectively.
I continue to believe that the market is overvalued at this point. I personally view anything over 30X as overvalued based on historical data. Note that we are near or over 40X and valuation levels near the top of the dot-com era.
S&P 500 PE Ratio
Shiller PE Ratio
Stock Market Volatility – CBOE VIX
The CBOE VIX measuring volatility was down this past week to 16.25. The long-term average is approximately 19 to 20. The first time since the pandemic started that the CBOE VIX went below the long-term average was three weeks ago.
Fear & Greed Index
I also track the Fear & Greed Index. The index is now in Neutral at a value of 59. This is down 1 point this past week.
There are seven indicators in the index. They are Put and Call Options, Junk Bond Demand, Market Momentum, Market Volatility, Stock Price Strength, Stock Price Breadth, and Safe Haven Demand.
Junk Bond Demand is indicating Extreme Greed. Investors are accepting 1.99% yield over investment grade corporate bonds. The spread is down further from recent levels indicating that investors are taking on more risk.
Market Momentum is indicating Extreme Greed. The S&P 500 is 11.16% over its 125-day average. This is further above the average than normal over the past 2-years.
Safe Haven Demand is in Extreme Greed. Stocks have outperformed bonds by 5.85% over the past 20 trading days. This is close to the strongest performance over the past 2-years as investor rotate back into stocks after a period of weakness.
Market Volatility is set at Neutral. The CBOE VIX reading of 16.25 is a neutral reading.
Put and Call Options are signaling Neutral. In the last five trading days, put option volume has lagged call option volume by 57.83%. Put buying is decreasing.
Stock Price Strength is signaling Extreme Fear. The number of stocks hitting 52-week highs compared to those hitting 52-week lows is at the lower end of its range.
Stock Price Breadth is indicating Extreme Fear as advancing volume is 9.90% more than declining volume on the NYSE. Market breadth is improving but it is still near the lower end of its range.
The U.S. Bureau of Labor Statistics reported the consumer price index rose 0.6% in March; this follows a 0.4% increase in February. The index is up a seasonally adjusted 2.6% from a year ago and eclipsed the 1.7% set for the period ending in February. The year-over-year gain is the highest since August 2018. Nearly half of the seasonally adjusted increase is due to a 9.1% increase in the gasoline index, which is up 22.5% year over year. The natural gas index also rose, contributing to a 5.0% increase in the energy index. The energy index has increased 13.2% over the last 12 months. Core CPI, which excludes the more volatile food and energy costs, increased 0.3% in March and is up 1.6% year over year; this follows a 1.3% increase for the 1-year period ending in February.
Fed Chair Powell spoke at The Economic Club of Washington, D.C., and expressed optimism over the recent economic upturn, attributing it to increased vaccinations, the Fed’s low-interest rates, and the unparalleled aid from Congress. The Fed expects a 4.5% unemployment rate at the end of 2021 and 3.5% at the end of 2023. Powell indicated that raising interest rates before 2022 was highly unlikely and won’t happen until the economy hits three key milestones – 1) the labor market has effectively recovered, 2) inflation reaches 2%, and 3) inflation is modestly above 2% for some time.
The U.S. Census Bureau reported new residential building permits were up 2.7% in March to a seasonally adjusted 1.766M, 30.2% above the March 2020 rate of 1.356M. By region new construction was robust in March as the Midwest surged to a seasonally adjusted 122.8% over February, the Northeast was up 64%, and the South came in with a 13.5% increase. The West was the loan outlier falling 13.6%.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.