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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.'"
It means Apple (according to many guru's and those on Wall Street in this day and age) think they do not know how to invest in themselves and what is valuable. Instead they feel to give the money back to the shareholders as they can invest in the money better than they can. Apple's stock price went down after the bell opened, but did go up in pre-trading (why is that legal ?)
However, my opinions are more old fashioned and feel Apple should give money back to its owners after they invested the risk duh. Doing so in old school theoretical sense means they want less pressure on quarterly results and on just raising the share price and giving investors some of their earnings back eleviates this and allows for the same amount of money for slower growth from investors. Which is what the the thinking was even if that is rejected for newer investors as growth not revenue is everything.
If I made you a partner in a company but didn't pay you because Hairyfeet, might just pay you then you will be on my ass to rise the share price as you see no return anyway. If it goes up then you gain money. That is how Apple has been operating since 1997.
Apple is trying to eleviate that.
It also is a little disapointing as Apple could start a 4G network to compete with the big boys, use the money for more R&D, or pay their Foxconn employers more and educate them to work for Apple China through scholarships. But Apple did not want to take that risk.
http://saveie6.com/
You're thinking like a poor person. When you're rich, you buy at whatever price, but you buy enough to drive the price up even more, usually with someone else's money first, and then you sell.
In the case of Apple and their 100 billion dollar cash on hand, they're pretty much right in principle on this though. 100 billion dollars cash on hand isn't giving enough ROI, and people can make better use of that money themselves than Apple can, if apple could use 100 billion dollars for something it wouldn't have it lying around collecting interest on overnight bonds and crap like that.
The stock buyback is pretty normal, use some of the corporate cash to drive up the paper value of the company, thereby enriching shareholders without them having to pay tax. Paying a dividend of 1.7% of the value of the stock seems like they're trying to ease into this.
Essentially, Apple is saying "our shares are undervalued". They have more information than the general public (hence the inefficient market comment). Apple says it is willing to buy at this low price, so th market says "time to buy".
I think it's important to point out something else here: They just have a huge pile of cash and nothing to do with it.
What they could do is issue it all as dividends, but that actually makes the share price go down. Because you start with a company that has ~$140B in cash, and you end up with a company that has the same non-cash assets but now has $120B in cash. Obviously the latter company is not worth as much money, because it doesn't have as much cash. The shareholders start with a share in a company worth $550, the company issues the dividend and the shareholders end up with a share worth $530 and $20 in cash. The cash has to come from somewhere and it comes out of the share price.
Allowing the share price to go down like will cause a lot of people to be unhappy. It's especially bad for employees who have stock options.
Doing the buyback instead has a lot of advantages, primarily as a result of leaving the share price where it is while still giving investors who want cash a way to get it without diluting their ownership stake in the company. If the company buys back 5% of its outstanding shares and you tender 5% of your holdings, you end up with cash in your pocket but no smaller percentage ownership of the company, and the employees and others who don't want the share price to go down are happy to see that it hasn't.