Why is Apple Stock valuable?

[Mr. Chewbacca]

I was looking at the stock dividends and it made a significant jump from last years .63 cents per quarter to .73 cents per quarter. At that rate it would take almost 65 years just to break even. I get that people make money by buying stock at X price and selling when the prices goes up. What I dont understand is why the price is going up if their is no actual return on the investment? How is that worth having? Is the only thing that gives it value the flip sale price?

https://i.imgur.com/4eyMvmn.png

 

[Videomanmac]

I would recommend watching a few videos on investopedia on how stocks work.

You don’t buy a stock for a dividends. A large dividend is nice plus, but you don’t but a stock for that reason. You buy a stock for the flip price. Because if I buy a stock at $10, and i sell it at $20, the stock doubled in value.

 

[dangerfish]

This

 

[Lloydbm41]

I would recommend watching a few videos on investopedia on how stocks work.

You don’t buy a stock for a dividends. A large dividend is nice plus, but you don’t but a stock for that reason. You buy a stock for the flip price. Because if I buy a stock at $10, and i sell it at $20, the stock doubled in value.

Exactly.

Now for the OP; If you had 1 share of Apple before the split (in 2014 I think it was), you had a $700 stock value. If you held onto that share after the split until today, you’ve nearly doubled your initial investment with 7 stocks now worth a total of $1350.
Getting a dividend is just icing on the cake.

 

[Mr. Chewbacca]

I guess I'm not phrasing my question well. I get that if you buy it and the price goes up you can sell it for more. I dont understand what gives a stock value. It seems like the stock does not pay much of anything, why would people be willing to pay so much to have it if it is such a poor investment? It seems like it's only actual value is in how people perceive it. Whats the point in buying a tiny part of a company if your ROI is pretty much nothing.

It seems like a house of cards to me. People buying something that is basically worthless and selling it.. I just dont get why the price/value is going up?

 

[Videomanmac]

I guess I'm not phrasing my question well. I get that if you buy it and the price goes up you can sell it for more. I dont understand what gives a stock value. It seems like the stock does not pay much of anything, why would people be willing to pay so much to have it if it is such a poor investment? It seems like it's only actual value is in how people perceive it. Whats the point in buying a tiny part of a company if your ROI is pretty much nothing.

It seems like a house of cards to me. People buying something that is basically worthless and selling it.. I just dont get why the price/value is going up?

You seem to be a little confused. There's no such thing as ROI in investing, per say. Because you will always* have your stock value if you invest in a company like Apple. You can put in $10, and if you want that $10 back, it isn't as if that $10 is in the form of a product now. Not the best example, I know.

What makes a stock go up or down is often things such as rumors, news, and quarterly reports. If a report comes out that Apple is going to ship 10 million less iPhone's, this will likely impact the stock as this equates to Apple not earning as much profit. Apple is not a poor investment, it is one of the strongest investments you can make.

 

[K-Funk]

Let's say all of Apple's assets (including its intellectual property) are worth $100, and you own 1% of the company. If Apple were to decide to sell its assets and liquidate, you would get $1. Therefore your stock is worth $1. Even though Apple is not planning on liquidating anytime soon, ultimately the value of your stock is based on what you would receive in a hypothetical liquidation. That's how stocks work basically.

 

[Videomanmac]

Let's say all of Apple's assets (including its intellectual property) are worth $100, and you own 1% of the company. If Apple were to decide to sell its assets and liquidate, you would get $1. Therefore your stock is worth $1. Even though Apple is not planning on liquidating anytime soon, ultimately the value of your stock is based on what you would receive in a hypothetical liquidation. That's how stocks work basically.

And, you would need a lot of shares to own even 1% of Apple

 

[K-Funk]

To elaborate, if Apple's assets are valued at $100, that means that the expected value of Apple's future profits, discounted back to today, is $100. If Apple suddenly surprises the market and releases an awesome new product, then the expected value of Apple's future profits might go up to, for example, $120. In that case, the value of your stock would go up 20%.

 

[T'hain Esh Kelch]

I think OP doesn't completely realize, that as soon as you own stock in a company, you actually own part of that company, and that is where its true value lies. It is not just some random voucher saying you like a company, or a bet that it will improve its revenue.

 

[K-Funk]

Theoretically, a company could decide to distribute 100% of its profits as dividends. In practice, a company will distribute *some* of its profits in order to give its investors a little bit of money now, but the company will keep most of the profits and "reinvest" them in the company, thereby hopefully increasing the value of the company. So today's dividends are relatively unimportant in valuing the stock. What really matters is how much money the market expects the company to make in the future.

 

[dangerfish]

I dont understand what gives a stock value. It seems like the stock does not pay much of anything, why would people be willing to pay so much to have it if it is such a poor investment? It seems like it's only actual value is in how people perceive it. Whats the point in buying a tiny part of a company if your ROI is pretty much nothing.

Yes, you don't understand.
When you buy stock in a company, any company, you become an actual owner of the company. You own a piece of the company and thus you share in any increase (or decrease) in value of that company.
Apple is currently the most valuable company in the world.
http://fortune.com/2018/05/21/fortune-500-most-valuable-companies-2018/
I don't know how you can say ROI is nothing. I've made 10's of thousands of dollars investing in Apple. Did you look at the chart I posted above?

 

[Mr. Chewbacca]

I guess that is pretty much the answer. The value of the stock is not benefits from currently owning a small part of the company but in the future value of those stocks. On the other hand if someone invested in the 90's when the price was low and before splits it would represent a steady form of income way above what they would have gotten from a long term deposit account. Imagine having purchased just 100 shares in 1997 for $0.63, it split (2x) in 2000 and 2005 and 7-1 in 2014. That would be a fantastic investment even if you never sold it.

Purchase price 100 shares in 1997.. 63.00

Shares after split (100x2)+(200x2)+(200x7) = 2,800 shares

Dividends on 2,800 shares would be $8,176 per year. Not bad for a $63 investment.

I completely understand the concept of buy low, sell high. My question was about the value of owning stock outside of selling the stock.... The value of actually owning it. Apple is an incredible company that I am proud of. I can only imagine what shares would be worth 20 years from now.

 

[T'hain Esh Kelch]

Imagine having purchased just 100 shares in 1997 for $0.63, it split (2x) in 2000 and 2005 and 7-1 in 2014. That would be a fantastic investment even if you never sold it.

Purchase price 100 shares in 1997.. 63.00

Shares after split (100x2)+(200x2)+(200x7) = 2,800 shares

Dividends on 2,800 shares would be $8,176 per year. Not bad for a $63 investment.

I completely understand the concept of buy low, sell high. My question was about the value of owning stock outside of selling the stock.... The value of actually owning it. Apple is an incredible company that I am proud of. I can only imagine what shares would be worth 20 years from now.

I bought my first Apple stock at when it was at 30$. Sold it with 100% return, and the majority of that money payed for my MBP that took me through university.

 

[Krayzkat]

I would recommend watching a few videos on investopedia on how stocks work.

You don’t buy a stock for a dividends. A large dividend is nice plus, but you don’t but a stock for that reason. You buy a stock for the flip price. Because if I buy a stock at $10, and i sell it at $20, the stock doubled in value.

Our mutual friend Mr Buffet buys some stocks just to receive the dividends every year/quarter. If a $100 stock only goes up in price to $101 after a decade of ownership, it's not that bad if you were receiving a $5 dividend from it every year.

There can be good tax benefits about receiving dividends too.

 

[ApfelKuchen]

In the end, your choice of investment is based on your goals and your tolerance for risk.

If you want a stable source of income, there are better investments than (most) stocks. Interest-bearing bonds and bank deposits, annuity contracts, and the like are likely to conserve your capital and pay you a promised return. One of the risks with this sort of investment is that the earnings received turns out to be lower than the inflation rate - your "safe," protected capital declines in value at a rate faster than it can be replenished by earnings.

One of the riskiest investments is starting your own business. The failure rate for new businesses is horrible, and while the reward for success can be enormous, often it's no better than earning the same (or lower) salary working for someone else. Basically, you're betting on yourself, and humans are pretty good at self-deception.

Stocks are investments in other peoples businesses. Rather than put all your money into a single business, you can diversify your risk by investing in a variety of businesses. You can buy highly speculative stocks that carry the lure of huge rewards if that (generally young) business becomes a success. You can also buy stocks in very well-established, stable businesses - lower risk, lower reward.

Young, rapidly growing companies are under little pressure to pay a dividend, as investors are already being rewarded by a higher stock price - all they need to do to cash in is to cash out. Mature, lower-growth businesses maintain their attractiveness by paying out part of their surplus cash as dividends, and/or using it to buy back shares (making the remaining shares worth more). Investors don't like it when a company is sitting on a huge pile of surplus cash that it refuses to share with its owners.

Apple has grown to the point where it can no longer attract investors with huge annual percentage gains in value. While some will argue that 15%-20% annual growth is still a very nice return, there are others who want more (sometimes much more) than that. Greed knows no bounds, so it's become time for Apple to "return money to shareholders."