Apple to Buy Back $10bn of Its Shares and Pay Dividend 301
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.'"
Re:Context? (Score:4, Interesting)
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.
Re:Context? (Score:3, Interesting)
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...
Option 1 to raise the value of outstanding shares by investing : Spend the dough on R+D or marketing or creating new markets or buying a productive company or "productive activity in general"
Option 2 buy the shares, dropping the supply in the wild to 90 shares, lower supply at constant demand equals higher price.
In the short run opt 2 makes the most money. In the long run opt 1 destroys the company. 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.
To some extent its a vote of non-confidence in the execs or general market pessimism... if the execs were enhancing shareholder value by 10% per year (made up number) then diluting the existing shares by issuing 1% more shares to give to the execs seems "OK" to the stockholders because they're still getting 9% rate of return (again, made up). However if you expect the stock to flatline or drop, then the stockholders will get pissed off at the idea of paying 1% of their capital to the execs... even if the rest of the market tanks 50% and apple flatlines, that capital loss will still piss off the shareholders.
Also note that we live in a centrally controlled economy and the tax implications are wildly different if the $1 lives in book value (cash per share) aka paper profit which is a capital gain at a date of your choice in the future, vs $1 in dividends this year taxable as dividend income this year. On the date of record or whatever the exact term is, the stock drops in price by about the value of the share. If your dividend tax rate is high enough you can sell before that date and buy after that date, at a standard commission of course for each trade, which might be less than your tax loss. Assuming you believe in relatively constant taxes and relatively constant valuation.
The TLDR version is they are pessimistic about the future and can't think of any way to avoid problems.
Re:They've got it backwards (Score:5, Interesting)
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.
Google, pay attention (Score:4, Interesting)
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.
Re:Context? (Score:3, Interesting)
Around February 2011, Jobs had to properly step back from the company as his illness was beginning to bite, he still hung around as best he could but this is the point where he really had to step away from the day to day running of the company, and Cook took over.
This is also about the point at which Apple's legal attacks really started to escalate, whilst there had been some before the sheer number and weight of the attacks - the amount of money being put into the legal attacks at this point increased massively.
Shortly after the iPad 2 was released, it was an "okay" update on the first one, but relatively lacklustre. It was hard to think much of that at the time, but it and the increase in legal attacks started to really set the stage for what was going on at Apple.
The June/July period came and went, with no iPhone release, it didn't seem too big a deal but when the iPhone4S eventually came, it came late and was a major dissapointment, being little more than a weak incremental upgrade, much like the iPad 2. Similarly, iOS 5 brought nothing new to the table, and contained mostly updates that simply copied long held Android features. But regardless, for the iPhone 4S it didn't really matter because it still sold- and in record numbers, but when you examine what happened here it's quite telling, todays news only further demonstrates Apple's problem.
They're out of ideas.
Here's why:
Ignoring the point that all hardware and software releases have brought really little new to the table, with Siri being perhaps the most innovative thing (but still ultimately little more than a voice to text interface for Woflram Alpha) you have to look at Apple's actions.
They started off by starting to sue serious competition like crazy - companies that were pushing out devices that were a genuine threat to their sales. The next issue was the realisation that the iPhone 4S looked really, really, weak, so to release on their usual yearly mid-year cycle would've not netted great sales, their plan was to delay it, and try and back up sales to people invested in the Apple ecosystem a few months such that the sales that would've been spread more evenly over the second half of the year in the usual iPhone release cycle were compressed into a much smaller period, making for great headline numbers, but at the expense of sales that dissapointed the markets in the earlier quarter.
Now step forward to today, and we've got Apple's announcement that they're going to spend money to inflate their share price, rather than continue to inflate it based on the continued strength of their innovation and the sales growth that has netted them.
I don't think anyone's going to argue that Apple is still going to be making an absolute bucket load of cash, but what's happened here is quite interesting - this is really the point at which it seems clear Apple has accepted that it's hit or nearing it's peak based on innovative product based growth, their last 3 key product refreshes (the iPhone 4S, and iPad 2 and 3) have been rather uninteresting.
I never really liked Jobs, but it's become clear that without him, Apple is just another tech company, and like Microsoft before them they've now peaked and are about to plateau. The share buy back is likely the point at which their share price will peak, and then they'll slowly decline as Microsoft's did before them to a level at which they'll stabilise - still placing them as a major technological company, but not the runaway "Apple's bigger than Polan" type of headline hysteria we see today.
They've had a good run but this last year coupled with the next year is their turning point. The change from innovation to lawsuits, delaying to build up expired contract demand, and now to spending 10% of their total cash pile to grow their share price artificially, rather than organically are the key points demonstrating a changing tide.
Many fanboys will tell you it's different, many will tell you that I'm wrong to suggest Apple product X wasn't lacklustre a
You solved your own riddle (Score:3, Interesting)
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...
Re:Context? (Score:1, Interesting)
When shares and capital collide, they vanish and in the process radiate investor relations marketing.
Control over the company is divided among fewer shares and the balance sheet total is reduced. "It becomes a smaller company that belongs to fewer shareholders." That's why buying back shares is fundamentally a bad sign. It means the company is running out of ideas what to do with the money. Of course sitting on the money when you're not doing anything with it is an even worse signal.
Re:Context? (Score:5, Interesting)
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.
Comment removed (Score:3, Interesting)