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Apple to Buy Back $10bn of Its Shares and Pay Dividend
floydman writes "Apple has said it will use its cash to start paying a dividend to shareholders and to buy back some of its shares. The technology giant said it would pay a quarterly dividend of $2.65 per share from July. It will buy back up to $10bn of its own shares starting in the company's next financial year, which begins on 30 September 2012. Apple CEO Tim Cook said, 'We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You'll see more of all of these in the future. Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.'"
...would assert himself as his own CEO, keep in mind that this never would have happened under Steve Jobs.
Any finance experts here? What does this buyback do? It probably makes the remaining shares more valuable, but are there any nasty angles to this?
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That's how decline starts.
"We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure,"
Hmmmm
It looks like this will cost Apple about $10 Billion a year, but their cash position has been growing faster than that recently. So, I'm guessing all it will do is slow down the rate of growth of their cash.
What, no DARPA-inspired cheetah bots and fleets of quadracopter-based Manhacks to hunt down Mike Daisey? Boring....
Didn't Steve Jobs say something like "Apple will only pay dividends over my dead body."
Too soon?
The fundamental principle behind stocks is to buy low, and sell high. Not the other way around.
When I was a boy of 11 or 12 years of age, I asked about how publicly traded companies and shares work. I was told that you own piece of a company through the shares, and so you receive a share of the profits, as well.
Somehow, this basic concept got completely wiped out by most hi-tech companies since then. So much so, in fact, that when Nokia or Apple does this payments, people are a bit puzzled.
"The agriculture ministry is not in charge of Gundam" - Japanese ministry official.
I sort of share your view but keep in mind that most investors will want a company to keep all of its profits and NOT pay dividends while the company is still able to make a larger return on that retained profit.
Apple has so much retained profit that it can't use it fast enough to stimulate growth. So the best thing to do is to pay some of that profit off as a dividend.
To put it another way: retaining profit and not paying dividends is the thing a company should do while it can still grow. If a company can make 30% return on equity (number out of thin air) then you want them to keep the equity they create so they can make another 30% next year. When that return on equity drops to below what you can get investing in another company or a bank account then give the investors the profits and let them put in other shares or just in a bank account.
Think of investing as a higher interest earning bank account that requires you to do a shit-tonne of analysis to make sure your money is always invested in the right place.
"Yeah Tommy, before Zee Germans get here
Please learn: how to spell "interesting", "originally", "dividends", and "screwed".
Also, when it is appropriate to capitalize words, such as nouns (Apple, Steve Jobs), as opposed to every other word.
It's still only about a 0.5% return.
Exxon, which is about half as profitable (~8% profit vs Apple's ~17% profit margin), puts out a 2.2% yield.
I'm not a big fan of big oil, but one of the things that really gets me about the hypocrisy is that when people ask what big oil does with all of that profit, the answer is "they pay out fat dividends to their tens of millions of shareholders." Exxon is practically cheap as hell compared to many of its small competitors; 5-10% yields from healthy companies are easy to find.
The dividend is $2.60, per one APPL share at $565.
I don't trade stocks, but is this really a significant payout to shareholders?
I thought it would take a little longer before the wall street bean counters started destroying Apple. Wonder how quickly Google will shift into super villain when their leadership goes...
Maybe Jobs was building up to buy back a big stake in itself freeing it from so much control from the bean counters which nearly killed it previously. Bad times need cash reserves; use savings fund or issue shares - but to pay dividends, that makes it into a big loan with the risk of having to pay for the borrowed money (instead of the gamblers paying for it.)
I realize modern MBA religion is 150% against conservatively structured business models and running fully leveraged is the only option (management never suffers from such risky positions they put everybody else into.)
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They've had a rough patch with the whole Foxconn and Jobs ordeals. Although the stock has performed amazingly well given the situation it never hurts to buy a little extra confidence.
Not that there was any hope anyhow but ironically this will make it nearly impossible for them to move operations back to the US since the cash is coming strictly from US accounts. Apparently they are unwilling to repatriat the money earned overseas so the plan will drain most of the US cash reserves. The joke is it could be an elaborate plan to bring the foreign money home by telling the government they need an exemption to repatriat the money so they can build US factories. Not likely but it would be a clever plan to force the government's hand to give them a massive tax break. In truth I think they were just running out of space in their mattress and had to do something with it all. It's not like you can just pay workers better wages with it:-)
$2.65/qtr * 4 = $10.6/yr
AAPL's share price (as of 11:39AM EST) was $594, making a yield of 1.78%.
Larry Page needs to spend some time learning from Apple. I don't like Apple but I have to give them credit for one thing -- they haven't wasted billions of dollars on stupid pointless crap (driverless cars, etc) and buying a hundred companies a year that they shut down and abandon a year later.
I would have been buying shares of Apple in 1997. How could I have known? Most of the later Pre-G3 PowerMacs were shit, with only a few exceptions (9600). They seriously did seem doomed. Instead, someone gave me some shares of Gateway as a gift, my parents wouldn't let me sell it, and seven years later I got a check for twelve cents. Now I'd have to choose between getting a crown on a tooth and a share of Apple. I guess not everyone can win everytime.
Not arrogant enough to call myself an expert, but using made up numbers, if you had 100 shares outstanding, and $10B in the bank, this is claiming you have nothing in the pipeline....
The problem is, Apple has $100B in the bank.
You just can't spend that kind of money, not without buying solid-gold toilet seats or other absurd assets. It's ridiculous. Apple has no problem funding ongoing R&D just out of what it makes quarter to quarter. No need to dip into the corporate savings account for that.
Buying back your own stock is basically saying, "Look,we have money to invest. We could invest it in gold, or US treasuries, or orange juice futures, but we think that the best possible investment in the world is Apple stock, so we're going to buy that."
Obviously they are now shifting their priorities a bit. So will this mean they aren't going to rely on lawyers to protect their territory and their flat things with rounded corners?
you buy back shares when they are CHEAP so you can re-issue shares when the stock price is higher later on
Yes, pretty obviously someone (or quite a few people) know a lot more about Apple's current share price being cheap or expensive. Since the only one in a real position to know is buying back shares, you end up looking rather foolish...
"There is more worth loving than we have strength to love." - Brian Jay Stanley
they'd just take all that cash and buy Microsoft, lop off the deadwood at the top and spin off three or four little companies to build iOS apps.
People should not fear their government. Governments should fear their people.
Apple has a huge amount of stock options that dilute the stock if they do not keep up with buybacks. They have been doing this for decades.
[RIAA] says its concern is artists. That's true, in just the sense that a cattle rancher is concerned about its cattle.
2) Investors will look at this as a signal that the company is bullish on its future, and you will see a disproportionate rise in the stock.
Apple has obviously been very bullish on the future for some time and the stock has remained wildly depressed.
I don't see the current actions changing that at all, Apple will remain heavily under-valued because people do not understand how Apple can be so successful nor do they understand the very large market Apple has left with easy expansion options into.
The dividend will get some more investors in but I doubt that will change the price much. Instead Apple's quarterly earnings will continue to drag the stock upward against the will of the market.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
preventing casual investors from entering the party.
Anyone can still buy stock you know...
"There is more worth loving than we have strength to love." - Brian Jay Stanley
I also have a degree in Finance and a Masters ( dumbest fucking thing I ever did.)
Essentially, Apple is saying "our shares are undervalued".
Or, they don't have a clue what to do with the money because they're out of ideas; which is a bad sign. Granted, distributing the money to stockholders is a hell of a lot better than an acquisition (acquisitions almost always involve paying waaayy too much for the target. ).
In my opinion (which is not much better than anyone else's), this is a bad sign. It is a sign that Apple is becoming stagnant and the iPad, iPhone, iTouch, and everything else they currently make is it. After the Apple gizmo fad wears off, they'll go into their cash cow phase - you should remember that from your strategy class.
Think of investing as gambling. Yeah, you can read up on the odds all you want, but at the end of the day the house wins. As a society, we just shouldn't force our citizens to gamble if they want to be financially responsible.
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How many multibillion dollar companies can you name that have the same profit margins as Apple?
Pharmaceutical companies have been doing it for decades - MUCH longer than Apple.
Then there are private (non publicly traded) businesses that are doing even better and will not go public because it will spoil the party.
Publicly traded businesses are the bottom of the barrel.
Cook will have to pay ordinary income on that dividends. I am sure he rather sell his stock for cash and pay long term capital gains.
See Modigliani and Miller "Irrelevance of dividend policy". They say that in a efficent world it does not matter if the company pays a dividend or not. Dividends are not efficent to pay out from a tax viewpoint. He's not doing this for selfish short term reasons. (Short Term being the imporant part here.)
First off, there's no place Apple can park that cash that provides a return anything like what their own operations generate. So a dividend is appropriate.
Second, the big threat to Apple is lower prices. Apple has great margins, but that only lasts if the competition can be fended off. Hence the litigation.
The computer industry in general had this problem. For a while, it looked like the future of personal computing was $99 netbooks, sold in bubble-packs in the stationery section of drugstores. This had the industry terrified. The mobile industry saved them, by creating a direct connection between the customer's wallet and the cell phone network operator. Apple saved them by offering a premium product at a higher price point. Microsoft saved them by crushing the Linux netbook industry. What we have now are mobile personal computers that cost $3000 over the 3 years of the phone contract.
I don't think most people understand the concept of dividends.
The main criticism is that company profits are much better used when re-invested back into the company. Why would you be excited that a company is giving away it's money instead of re-investing in itself to make itself more profitable in the future? Now, if you personally don't want to see your "gains" re-invested, then you have the choice to just sell a portion of your investment and take the profit without affecting the company (assuming you don't have some massive position where a sell would affect the stock price, which is the normal case).
Dividends are usually also taxed twice. The company has paid taxes on it's profits, and the shareholder pays income tax on the dividend payment. Whereas taking your gain from selling the stock is independent of any tax the company has paid.
Dividends also give this false impression of extra profit. When a company pays a dividend, the stock reduces by virtually the same amount of the dividend that was paid. Thus you aren't theoretically getting anything extra. If your share was worth $30 and the dividend is $3, you receive $3 in cash and now your stock is worth $27. So, paying the dividend is not giving anything extra to shareholders. If anything, it forces you to manually rebalance your portfolio to account for the dividend. Now this may not be a big deal on a normal basis, but it's still something to consider. i.e., you put $100 in dividend paying stocks and $100 in nondividend paying stocks. If the dividend paying stocks have paid out $10, you now have $10 in cash, $90 in dividend paying stocks, $100 in non-dividend paying stocks. Your portfolio has changed balance simply because of dividends.
Some practical uses of dividends are receiving cash from your investment that is taxed at a more favourable rate than short-term capital gains and not having to act (i.e., sell shares) to receive income. So that can be a convenient point.
Now sure, you can argue that Apple is an extreme case.. after all who the hell has $100b in cash just sitting around. So I'm not really trying to apply the normal aspects of dividends to this situation. But these are facts worth noting in general. Dividends should not, in theory, be a "good thing". Thus even though you can argue dividend paying stocks do tend to perform better than non-dividend stocks, the reason is not the dividend itself. It may just be the company was in good enough shape to pay dividends, whereas a company losing value is probably not in a position to pay dividends.
The market cap on Apple is way way to high. They are larger than Exxon Mobile and probably a bunch of other companies like IBM combined? No, they aren't. Their stock has been way over valued for a long time. When it falls, I bet it will fall fast and people will be jumping from windows because of their losses. I sold them over a year ago and I'm just amazed it hasn't come crashing down yet. Ready to buy once it hits $10/share.
Apple should probably just start buying real estate (or MAKING it, like they do in Japan).
Where did you hear about this 20% percent retained earnings rule (20% of what?)? I've never heard of it. I would venture a guess that if that was a real GAAP or FASB or IASB or IRS guideline that most if not all publicly traded companies would run afoul of it. It sounds like you are conflating something related to accounting for subsidiaries with an IRS tax rule.
FYI:
Berkshire Hathaway is a publicly traded company. I have no clue why you'd think that it is not. It's stock symbols are BRK.A and BRK.B (class A and B shares, respectively). Here is a link to its SEC 10-K for 2011:
http://www.berkshirehathaway.com/2011ar/201110-K.pdf
How about lowering your profit margins by 50% to only a 75% markup and enter into more markets?
It really is the end of the world this year.
-AI
mild ribbing aside, kudos, another step in the right direction
For me, it is far better to grasp the Universe as it really is than to persist in delusion
Yeah, I can do much better elsewhere, thanks.
Apple should have brought the electric car to the market by buying Tesla and integrating the cars with their existing tech and retail expertise.
A lot of people treat it that way and that's where value investors make their money.
Take a listen to Roger Montgomery's latest ASX podcast/talk
Audio: http://secure-au.imrworldwide.com/cgi-bin/b?cg=av&ci=asx&tu=http://www.asx.com.au/podcast/asx-investor-hour-2012021.mp3
Slides: http://secure-au.imrworldwide.com/cgi-bin/b?cg=av&ci=asx&tu=http://www.asx.com.au/documents/slides/asx-investor-hour-20120221.pdf
His philosophy gels well with nerds like us. He likes to treat his investing as if he were buying a whole business instead of little numbers on a screen.
"Yeah Tommy, before Zee Germans get here
No, think of investing as buying a stake in a company. You may not be able to own a major stake in Apple but you can own a small slice of it. Essentially public companies are owned by our society. If the average schmo would rather waste his money on beer, video games and rims for his car instead of buying ownership in America's greatest companies that's his problem.
Gambling is at best a zero sum game. The fact that we live in a civilization with corporations, houses, cars, and other possessions, voluntary employees, and stockholders strongly suggests that stock investing as a whole is a positive sum game. That there is risk involved does not make it gambling: there's risk involved in leaving your money in a savings account (where "inflation" beats compound interest), the risk is just less at the bank. If you think it's gambling, you aren't doing it properly.
Contribute to civilization: ari.aynrand.org/donate
I don't want to buy a business. I want to put in an honest day's work and get paid a fair amount. That fair amount should be enough, if I'm responsible and save for me to retire on. The fact that we force our retirees to gamble with their retirement is appalling. The fact that we allow that to be used as political leverage (you can't enforce the laws against investment banks, think of my 401K!), is even more so.
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