Few would argue with the investing success of Berkshire Hathaway chief Warren Buffett. Since taking the helm nearly 60 years ago, his stock-picking acumen has yielded compounded annual gains of roughly 20%, and Berkshire’s portfolio has collectively soared a massive 3,787,464%.
His ability to choose consistent performers earned him the moniker “Oracle of Omaha.” With more than three dozen stocks in Berkshire’s holdings, those looking to follow Buffett’s example have a wide range of stocks to choose from. Yet, for all those choices, one company has come to dominate the portfolio. Buffett has cited the company’s strong track record of growth, loyal customer base, and enviable history of returning capital to shareholders as selling points for Apple (NASDAQ: AAPL).
Furthermore, Buffett continues to heap praise on Apple, saying, “It just happens to be better business than any we own.” There are plenty of reasons to own Apple stock, but having the Buffett seal of approval certainly adds weight.
The flagship iPhone
There’s little question that Apple made its fortune on the back of its flagship iPhone — and with good reason. The company’s consistent focus on quality has placed the iPhone among the world’s most widely used smartphones. Apple captured roughly 45% share of global smartphone revenues, according to data compiled by Counterpoint Research.
Perhaps more importantly, Apple has long controlled the majority of the profits in the smartphone industry, hitting 85% earlier this year. For context, Samsung Electronics comes in a distant second, with 17% of revenue and 12% of profits.
This helps illustrate Apple’s dominant position in the smartphone market, which has continued to grow over time and helped fuel its unbridled success.
The proof is in the pudding
To be clear, the past couple of years have been rife with challenges for the iPhone maker. Inflation rates climbed to 40-year highs, causing many consumers to make tough choices in the grocery aisle and at the gas pump. With headwinds of that magnitude, it’s understandable that people would hang on to their current devices a bit longer, as getting a replacement was low on the priority list.
Despite those economic headwinds, Apple continued to generate remarkably resilient results. For its fiscal 2023 fourth quarter (ended Sep. 30), iPhone revenue of $43.8 billion grew 3% year over year, hitting a new September quarter high.
Services played its part as revenue of $22 billion climbed 16%, reaching a new all-time high, though sales of Mac computers and other devices slumped. Apple kept its overall decline to a minimum, with revenue of $89.5 billion dipping less than 3% year over year while earnings per share of $1.46 climbed 13%.
Shareholder-friendly policies
A cadre of loyal customers and industry-leading profits have pushed Apple to the top of the tech heap, achieving the title of the world’s largest company and sporting a market cap of more than $3 trillion. As a result, investors have enjoyed stock price gains of 851% over the past 10 years — but that tells just part of the story.
Since Apple resumed its payouts in 2012, the company has become something of a dividend powerhouse. The most recent increase came in April, raising its payout by 4% to $0.24. On a split-adjusted basis, Apple’s payout initially began at roughly $0.095 and has soared an impressive 153% since inception. Perhaps as importantly, Apple uses just 15% of its profits to fund the payout, so the company can continue to boost its dividend for years to come.
Income investors will note Apple’s seemingly unimpressive yield of just 0.50%. However, the stock price gains must be considered in the equation as shareholders have enjoyed total returns — which includes capital gains and dividends — of 924% over the past decade, despite the worst downturn since 2008.
Further enriching shareholders is Apple’s generous share buyback plan. The company has retired more than 40% of its outstanding shares since 2013, entitling existing investors to a larger share of Apple’s profits.
Buffett has praised Apple’s ongoing share repurchases, saying he’s “wildly in favor of it.” He went on to note this increases Berkshire’s ownership of Apple, and he doesn’t have to lift a finger to make it happen.
The fine print
Value investors will note that Apple isn’t exactly cheap, clocking in at 30 times forward earnings, a slight premium to the price-to-earnings ratio of 26 for the S&P 500. That said, the magnitude of the company’s results over the past decade shows that Apple investors have more than gotten their money’s worth.
Given the company’s domination of the market and strong track record of shareholder returns, if I could buy only one, Apple would be the one Warren Buffett stock on my list.
Should you invest $1,000 in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of December 18, 2023
Danny Vena has positions in Apple. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
If I Could Buy Just 1 Warren Buffett Stock in 2024, This Would Be It was originally published by The Motley Fool