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Was It a Mistake to Buy Apple Inc. (AAPL)?

LONDON — This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.

Apple Inc. (AAPL)There’s an old rule of thumb among long-term investors that says as long as we are happy with a company’s fundamental performance, we should take advantage of short-term panics to buy up shares cheap.

So when Apple Inc. (NASDAQ:AAPL) revealed a mere 18% rise in revenue for the quarter ending December, and a record quarterly profit that was only a little up on the same period last year, I watched the resulting fall in the share price and pounced. Apple shares were added to the Beginners’ Portfolio at a buy price of $458.40. (It’s not real money, but other than that I’m running the portfolio just like a real one.)

The end of growth?
Then came Apple Inc. (NASDAQ:AAPL)’s first-quarter results for 2013, and profits fell for the first time in a decade, by 18%. And the share price today? Well, it’s down to $417.20, for a fall of 9% since our purchase. So was it a mistake to add the shares to the portfolio? Let’s consider a few things…

For the quarter, revenue actually rose 11% compared to the same period a year ago, but it was falling gross margins that did the damage to profits — 37.5% this time, compared to 47.4% a year ago, and pundits are expecting around 35% going forward.

But Apple Inc. (NASDAQ:AAPL) did manage to shift 37.4 million iPhones and 19.5 million iPads during the quarter and, although Mac sales dropped 2%, that’s against a general fall in sales of conventional PCs of 14%.

Don’t forget the income
For years, Apple Inc. (NASDAQ:AAPL) has resisted paying any dividends, instead building up a huge cash mountain to use for whatever new idea came along. And though many saw Apple as a perpetual growth company, rational folk know there is no such thing. In fact, the introduction of a dividend was a major sign that a shift toward becoming a mature company with a new focus on providing income was in progress — and at the end of the day, it’s only that eventual potential income that gives any growth company its value.

The quarterly dividend has now been hiked by a very nice 15%, to $3.05 per share, and that alone represents a 3% yield over the full year. But it’s not the end of it — Apple Inc. (NASDAQ:AAPL) intends to return a total of $100 billion to shareholders by the end of 2015, partly through a big rise in its share buyback program from $10 billion to $60 billion.

Apple Inc. (NASDAQ:AAPL) shares are on a price-to-earnings ratio of only around 10, which is way down from a five-year high of nearly 40, and that provides even more evidence to me that the shares are currently priced as a long-term income-paying investment — and that’s no bad thing.

You may not be surprised to learn, then, that I’m still happy for the portfolio to hold Apple Inc. (NASDAQ:AAPL) shares, because I do think that it will be a nicely profitable investment over the next decade or two.

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