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Should You Invest in Apple (AAPL) Stock?

By U.S. News & World Report

Apple (ticker: AAPL) is the largest publicly traded company in the world. As such, it might not surprise you to find out that it’s also one of the most widely owned stocks by retail investors.

But if it isn’t in your portfolio should you buy AAPL stock now? And if you already own some, should you invest in more Apple shares?

[See: The 25 Best Blue-Chip Stocks to Buy for 2017.]

Before you make those decisions you’ll certainly want to take an inventory of the pros and cons involved when you buy Apple stock. Here’s a quick rundown of the biggest headwinds and tailwinds for the Cupertino, California-based tech giant.

Arguments For Buying Apple Stock

One can pick and choose any number of pros and cons for Apple, but there are three big ones currently facing the company.

A solid and sustainable dividend. In 2012, AAPL stock began paying a quarterly dividend for the first time in nearly 17 years. Companies only reinstate dividends when they’re confident they can pay them in perpetuity, and with the blockbuster success of the iPhone and iPad, Apple had developed two cash cows.

Since then, Apple has routinely increased its dividend annually, and more importantly, the company has more than enough earnings power to support a steadily increasing cash dividend. The payout ratio — the percentage of profits used to pay dividends — is just 28 percent, a remarkably low ratio.

Given its cash hoard of about $250 billion, even if earnings fell off a cliff Apple would be a solid dividend stock with the ability to dish out income to its shareholders.

“To put that in perspective, there are only 12 companies in the S&P 500 with a total market capitalization greater than Apple’s cash holdings,” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania.

A strong ecosystem. One of the strongest selling points for Apple products is how seamlessly they speak to and work with each other. For example, you can view iMessages not just on your iPhone but on your iPad, Mac and Apple Watch; Apple’s headphone products work more smoothly than rivals with Apple devices; free Apple Music trials are given to iPhone buyers; iCloud, apps and iTunes content can be accessed across devices, and so forth.

This keeps users locked in and hopelessly reliant on Apple products.

“Apple excels with respect to the network effect as the value of iPhones and iPads increases as more apps become available,” Johnson says, referencing another important part of the ecosystem.

Growing revenue in the Services segment. In 2016, revenue from Services, which includes AppleCare, Apple Pay, the AppStore, iTunes, Apple Music and other software segments, grew 22 percent to $24.3 billion. It is now the second-largest division of Apple by revenue behind the iPhone. That’s great for shareholders not only because it’s growing at a healthy pace, but because Services enjoys much higher margins than other business segments, benefiting Apple’s overall margins.

[See: 7 of the Best ETFs to Own in 2017.]

Thankfully this high-margin section of the business isn’t expected to stop growing anytime soon, either.

“Service revenue is expected to double in the next four years,” says K C Ma, finance professor at Stetson University.

Arguments Against Buying Apple Stock

It’s not all rainbows and sunshine for AAPL stock, of course. Here are the three biggest ones to keep an eye on.

Apple’s high-growth days appear to be over. Apple doesn’t grow like it once did, plain and simple. In fact, in recent periods it hasn’t grown at all. In 2016, AAPL reported its first year-over-year decline in quarterly revenue since 2003 as iPhone sales fell. While very modest growth appears to be returning, the fact of the matter is over 60 percent of the company’s revenue still comes from the iPhone. Considering that the smartphone market is now mature, low growth in iPhone sales will likely become the norm.

“There is a concern about the iPhone’s long-term growth prospects beyond the iPhone 8 and 10-year anniversary iPhone launches later this year. As the growth in smartphone sales began slowing, Samsung took back the title of global market share leader in the most recent quarter,” Ma says.

Current valuation. Apple stock, trading at around 17 times earnings, trades at the high end of its five-year price-earnings range. That range runs from 9.2 to 18.4, with an average of 13.5. Given the lower expected rate of growth just mentioned, it’s doubly concerning that Apple’s multiple should be 25 percent higher than its five-year average.

While the smartphone market is indeed maturing, many of those bullish on AAPL stock think the potential to grow in emerging markets may justify Apple’s valuation. That conception could be flawed.

“While Apple’s premium pricing strategy may help gross margin, it also limits unit sales growth as devices may not be cost effective for many emerging market customers,” Ma says.

Lack of innovation. Another reason Apple’s high valuation is a concern is the fact that Apple simply isn’t innovating anymore. Since Tim Cook took over as CEO in 2011, a sum total of two new products, the Apple Watch in 2015 and the HomePod in 2017, have been released. The first is generally considered a commercial failure and the second is a copycat of Amazon.com’s ( AMZN) Echo, which was itself first released a full three years prior, in 2014.

Conclusion

There’s no doubt that Apple stock is special. There’s no other company on Earth with the cash hoard and consistent profitability that Apple provides. It looks as if that won’t change anytime soon, due to the strength of the brand and ecosystem.

[See: 7 of the Best Stocks to Buy for 2017.]

However, every stock has a fair price — even stocks in companies with unholy gobs of money — and risks should be taken into consideration when trying to value a stock. When you consider the relatively high P/E ratio of AAPL, the relatively low growth rate of Apple, and the general ability of tech firms to usurp one another suddenly and unexpectedly, long-term investors should think carefully before investing.

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Should You Invest in Apple (AAPL) Stock? originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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