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.'"

Comments

Context?

[TaoPhoenix]

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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[tverbeek]

"To some extent opt 1 means they can't think of anything productive to do with the money, so they're giving it back. Frankly this might be true."

Or (getting in touch with reality briefly) it means that they can't think of anything that they need 100 billion dollars for, but they think that merely tens of billions of dollars, plus the ongoing profits from their money-printing iProducts, will be enough working capital for what they do have planned.

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[phantomfive]

My best estimate is that Apple shares should be priced around $130-$150/share, not the idiotic $600 that people have bid it up to. If I had the cash to short Apple stock over the long term, I would do that.

lol now we know why you don't have the cash. At the rate Apple is making money, if their stock were $130 a share, they could buy back all of it by the end of the year.

Also stop looking at the absolute number of stock price, because it's unimportant. You need to consider the total value of the company VS total profits. At a P/E ratio of 15, Apple IS cheap, unless you think they are not going to be able to keep making money like they are now (a case could be argued to that point, but you haven't done that).

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[L3370]

This should not be modded insightful, and the person should be glad that they posted as AC.

$130 per share would barely cover the amount of PURE CASH the company holds, let alone there assets in real estate, patents, office furniture/equipment etc.... Factor in other details such as...oh I dunno... actual profits... projected earnings and other profit making assets, one could argue that this is one of the few companies IN THE WORLD that deserve such a high valuation. How many multibillion dollar companies can you name that have the same profit margins as Apple? That's a tough list to compile. How many companies beat analyst estimates nearly every single quarter and post record profits on a regular basis?

Your opinion on share buyback is sound, however. It's popular right now to believe share buybacks are a waste of money. Investors don't seem to be moved very much by this gesture now days. You can rightfully argue the buyback plan is a waste, but on paper less stock available should equal more value per share.

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[dgatwood]

You're pulling your punches. Apple has a little over a hundred bucks per share in cash position, and made about $20 per share in Q4 2011. So the GP is suggesting that Apple's value should be based on their current cash position plus one quarter worth of sales, which means after you take out the cash, the company would have an effective P/E ratio of 0.25.... That's so far removed from proper investing advice that it's absurd. Such a low P/E ratio would make sense only for a company on the verge of bankruptcy.

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[Bogtha]

when the iPhone4S eventually came, it came late and was a major disappointment

Er, no. Firstly, it wasn't late. Apple don't announce far-off release dates for the iPhone. People speculated that Apple would release June-July time, but that speculation was wrong. That's not the same thing as "it came late".

Secondly, it wasn't a disappointment. They are selling them as fast as they can make them. The trouble is that supposed "analysts" were trumpeting the iPhone 5 that could grant wishes and came with a free unicorn. Those analysts had to turn around and call it a disappointment to avoid saving face. It happens for every Apple product launch. They sold 4 million in their first three days on sale. In what world is that a disappointment?

Similarly, iOS 5 brought nothing new to the table, and contained mostly updates that simply copied long held Android features.

iOS 5 had Newsstand, which gets Apple a piece of the magazine industry, iCloud, which nets them subscription fees and improves apps across the board, and it can now be used without any computer at all, which appeals to the people who want a phone but don't care about computers. I have an Android phone, and that's not true for any of it (it's supposed to be usable without a computer, but after about six months, an update arrived that could only be installed through Windows).

Many fanboys will tell you it's different, many will tell you that I'm wrong to suggest Apple product X wasn't lacklustre as I've claimed - that's fine, but I'm merely talking from a point of view of the markets

The market has spoken and the market adores the iPhone 4S. Sales are fantastic and share price is steadily rising. You don't have to be a fanboy to see that.

Probably won't affect cash position

[busyqth]

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.

When I was a boy...

[blind biker]

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.

Order of magnitude more

[Anonymous Coward]

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."