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.'"
Context? (Score:5, Insightful)
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?
Re:Context? (Score:4, Funny)
More importantly, if it reached over 50% ownership of its own shares would it become sentient?
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No, repurchased shares are 'retired' and are not held or controlled by the board.
Not always, they can also be left in the treasury, available for reissue at a later date.
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So, all they want to do is concentrate power? The one share to rule them all?
essentially, all the people who own stock own the corporate buybacked stock. so yea, if you'd end up as the last person holding stock..
Re:Context? (Score:4, Informative)
By itself it is (here) a small concentration of power, roughly speaking offset in Apple's plan by the deconcentration of power that happens when they issue new shares of stock for stock option grants and so on. No big deal.
Another way of thinking about it is that there's a lot of money sitting around that isn't actually doing much for it's share owners. It's making maybe a couple percent in government bonds. By returning some of the "wealth of the company" to owners, it allows those owners to decide how they want that additional money invested. If Apple could make a new product that cost $50B to make and returned a good profit on that, it'd be much better for investors if they didn't issue a buyback. But it doesn't do anyone much good for a cash pile that big to just sit around in low-yielding bonds, unless it can eventually be put to work.
GAAP (Score:4, Informative)
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 [berkshirehathaway.com]
Re:Context? (Score:4, Informative)
Wait, WHAT?
BRK-A and BRK-B are two different classes of Berkshire Hathaway shares, traded publicly on the NYSE.
Re:Context? (Score:5, Informative)
There are some medium-long term downsides to this, should Apple fall hard in the long term (ie; tablets prove to just be a trend, iPhone sales fall, etc...), but this is what investors have been waiting for. This is a fairly large buyback, which will inflate the price of the shares even more, but it's a small amount of money for Apple to be investing in itself.
This will more than likely force AAPL above $600 for the remainder of the financial year (and probably closer to $700).
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On the other hand, it does shift Apple stock ever-so-slightly into the land of more
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I think you're wrong.
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...
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You know Cook's parachute doesn't deploy for 10 years, right? It half deploys in 5 years.
Re:Context? (Score:5, Insightful)
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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Walmart may have a market cap of 50% yearly revenue because they have razor-thin margins when you compare them with Apple. They have got much less of a cushion should things turn bad, compared to Apple.
Re:Context? (Score:5, Insightful)
$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.
Re:Context? (Score:5, Insightful)
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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For the informed: maybe the shares are CHEAP compared to what they will be in the future. Really, given the growth rate of Apple, I don't see how the shares could come back down any time soon, unless there's some major end-of-world-like catastrophe.
"My best estimate is that Apple shares should be priced around $130-$150/share"
What the hell is your estimate based on? The P/E ratio is already about average for the market if going by TTM (trailing 12 months), which is flawed since Apple's business has been d
Re:Context? (Score:5, Informative)
I have two Finance degrees and close to a Master's.
1) In theory the stock buyback would do nothing to the value of shares. The remaining shares would own a bigger part of the company, but this company is ten billion dollars less valuable. In an efficient market, this would offset
Fact: We do not operate in an efficient market.
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.
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".
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You have to understand something important here:
I'm karma whoring for the next Apple thread. :)
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You talk almost as if you were a sage or mystic, and it unsettles me all the more.
I get what you're saying about the market and all, but when I hear things like "consumer confidence" and all I feel as if the entirety of Wall Street is based on some sort of weird financial voodoo instead of any actual merit (on the part of companies).
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Whenever a politician/economist/pundit talks about "confidence", he is either deluded or lying. This "confidence" word is really useful like that. It means anything from "suckers are more willing to part with their money" to "magical thinking will save the day".
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You talk almost as if you were a sage or mystic, and it unsettles me all the more.
Isn't that how economics work? No one knows, they just make educated guesses and hope they come out correct at the end.
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If APPL leaves the number of shares out standing constant, and retains them as treasury stock it does dilute the voting power of investors. Part of this may be to free the board and management to take more independent actions.
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.
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Why would a stock buyback do nothing in theory to share price?
It seems like there's an assumption that there's no demand for the stock or the needed shares for a buyback are 'excess' shares otherwise unavailable through normal markets.
It seems to me under normal market conditions, a stock buy-back of meaningful volume should increase share price at least minimally because the buyback is taking shares out of the marketplace -- reducing supply without an increase in demand should result in increased prices, r
Re:Context? (Score:5, Informative)
In theory the stock buyback would do nothing to the value of shares. The remaining shares would own a bigger part of the company, but this company is ten billion dollars less valuable.
yah, um, well sorta...
You are distributing some of your cash pile, but it's cash you aren't using. Buying back shares, means you are reducing the float, which means earnings per share goes up, which makes the P/E multiple go down (and Apple's PE multiple is fairly modest to start)..
These are all good things.
The dividend isn't much, but it does help to draw in dividend-ased mutual fund managers who, by their fund's charter, have to invest in stocks that pay dividend. Also IRA, and Roth based investors will often automatically reinvest the dividend, essentially doing a "buyback" for you..
One other thing to note is that, the plan anounced today is still modest. Even if apple only manages to grow 1/3rd the rate analysts predic, their cash pile will still grow, albeit at a much more moderate pace.
Re:Context? (Score:5, Informative)
Stock buybacks indeed make the shares more valuable. Paying dividends can entice some institutional investors to buy shares which they would not otherwise do. As long as Apple keeps sufficient cash on hand, this is a general win.
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.
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i have a lot of apple products at home, but what innovation?
nice laptops, check. they have been around for years
MP3 player? did it better than others
smart phone, apple just made it better
tablet, apple made it better as well.
TV? rumor is apple is going to make it better later this year
apple TV? don't like it too much. love my PS3 and xbox and roku seems better
is there some device i'm missing that i just have to have? do i really need a wearable computer?
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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
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In the long run opt 1 destroys the company. To some extent opt 1 means
Blast it I mean option 2.
Although known incompetence in management could mean trying to expand would just destroy the company, so some simply give the money back thru option 2 rather than trying to dotcom themselves... This is kind of rare due to peter principle but it does sometimes happen. Most of the time giving up on future growth means you're not expecting future growth means eventual death of the company
Re:Context? (Score:5, Insightful)
"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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Agreed. Its hard to believe, but if they're arrogant enough to think they're the highest ROI corporation in the entire world, then they can't make money by purchasing some other industry, even in a quasi-legal holding corporation kind of way, so they may as well give the money back.
Re:Context? (Score:4, Insightful)
Exactly. What worth 100B dollars could Apple buy that they also could have a good fit with? They aren't about to buy SAP or controlling interest in oracle, or 2 HP's, or 3 Dells, or 5 Nokias, etc. There just aren't enough big enough targets out there, and even if they are they are pretty much worthless because Apple wins by having their systems completely designed as a integrated whole in house. I can't see how Apple + a Facebook, or HP or something makes sense. They still would be two completely different companies so all the "synergies" that deal-makers always like to conjure up are not so easy to imagine.
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I can see a Foxconn takeover making sense.
No. That makes no sense. Then Apple would be directly responsible for the conditions there. Also, it's legally impossible.
Intel's assets in Israel would be a good fit, too, since we're talking pie in the sky stuff.
You mean, since we're talking pure, anonymous, cowardly bullshit. We're talking about one of the most contentious regions on the planet, Apple would only be buying themselves headaches.
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Let someone else do the dirty work of manufacturing. Apple just has to keep the hype machine going and occasionally toss out something "sleek". That's going to be difficult enough.
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Interesting thing is, this is where the "mythical man-month" concept applies. If they threw all $100B around for future investments, it doesn't mean they'll get anywhere close to 10x the amount of returns as if they only spent $10B.
So in effect, they really do have more money than they can spend.
Order of magnitude more (Score:5, Insightful)
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."
Re:Context? (Score:5, Informative)
Your TLDR version is wrong.
Corporate investments are (in theory) all about how to get the best return. Cash is a powerful asset, and can be used for all sorts of stuff. A company paying dividends/doing buybacks is signalling the market that they don't have an option that produces a return for shareholders that beats the market, for that particular piece of money.
Holding cash causes a loss in value due to the inflation. AAPL is saying that they don't have a market-beating option for that chunk of money. Thus, they give it back to the shareholders (so they can get a better return). Likewise, the buyback will push up stock value (a return for shareholders), at least in the short-term, and consolidates control. Which the company believes is a better use of the money right now.
Note that (I'm 99% sure) this is a special dividend - they aren't committed to it for ever and ever (like some companies). They still invest like crazy in R&D, and have said they will continue to do so. They just don't have $100B worth of R&D opportunities that will generate a market-beating ROI, in their opinion.
This doesn't say anything about pessimism or avoiding problems - it's an ROI thing. A regular dividend from a tech company would be a discouraging sign, esp. one with as much growth lately as AAPL, in the markets they play in. I think this just says they made a shitpile of money, and couldn't spend it fast enough on worthwhile stuff. That's all.
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The stated intent of the buyback is to prevent dilution of outstanding shares when Apple gives RSU shares to its employees. I guess that means they spend $15B/year on their employee share bonuses.
Simon.
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The buyback is intended to offset exercised employee stock options, so the net effect is intended to be that the existing shares retain their current value (rather than being diluted by the new shares).
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This makes no sense. Market cap has absolutely nothing to do with assets or liquidity of the company. It is simply the share price times the total number of shares. The only thing it is useful for measuring is how much it would cost to buy the entire company.
The reason for stock buybacks is to 'return value to the investors'. You can do one of two things to return value - increase the share price, or pay dividends. Since Apple has a history of not paying dividends (the current exception seems to be a o
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A share buyback shouldn't change the share price (though of course in practice...). It reduces the number of available shares but it also reduces the wroth of the company (it now has less cash) - by equal amounts.
If a company had 100 shares and a price of $10 and bought back 10 shares. Then there are now 90 shares, but the company has $100 less cash on hand. Before the buy back the company was valued at being wroth $10*100 = $1000. It should now be worth $1000-$100 = $900 - and there are 90 shares left so $
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Your example would be correct if the company were valued based solely on the current cash divided by the number of shares--10% less cash and 10% fewer shares would result in the same share price. However, the value of a share is a function of the earnings and expected growth rate of those earnings, not just the cash on hand. A buyback, if large enough, can increase the earnings per share by reducing the number of shares, even for a mature company with a slow growth rate.
However, in this case, the buyback
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It should make the shares more valuable. It could end up not getting fully adjusted for, or alternatively it could hype up the stock more (investors expecting even more buy backs in the future for example). But at least in theory all metrics increase (earnings per share, profit per share etc) and things should exactly adjust.
Personally I say ... about freaking time they did something with the money. It is okay to have a war chest, but you actually have to go to war sometime in a reasonable amount of time. O
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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 mass
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It's hard to argue that the products you named are lackluster if each time they sell better than the previous product. Perhaps you were unimpressed, but consumers loved them all and as a business, that's all that matters.
Stock markets may have been unimpressed by announcements, but Apple has the highest market cap right now, so clearly they're doing something right. Shareholders are apparently stupid, and have no idea what customers like, but each time Apple comes out with an earnings report, or says how ma
Re:Context? (Score:5, Informative)
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
Do you work for the Enderle Corp or some "technology analyst" firm that feels they can ignore market reality? Those products you state as "disappointments" were the best-selling and most profitable products of their respective markets. Just because you can't see past the horizon doesn't mean the earth is flat.
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Word salad - look at Apple's competitors in the smartphone market and they charge the same kinds of prices that Apple does. And remember when the i
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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
A "major disappointment" that happened to sell more units that month than any other smartphone did all year, and became the highest selling smartphone in the world.
Apple is doing great, but now what? (Score:4, Insightful)
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, [alibaba.com] 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.
Re:Context? (Score:5, Insightful)
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?
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).
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.
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Apple is one of the small handfuls of companies that has never had a stock split...
Wow, do some research before you post - AAPL has split 2-1 on three separate occasions.
Lawsuits (Score:2, Funny)
"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
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increased research and development, acquisitions
That's your legal department- patents, copyrights, and buyouts. Of course, this also goes hand-in-hand with some real innovation, products, and legal involvement is standard with acquisitions.
Re:Lawsuits (Score:4, Funny)
you don't use the term "war chest" unless you're talking about lawsuits, either going on the attack or defense.
Or actual war. Maybe the iTroopers will march on Google.
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Something that steve jobs learned early in his life. you can't march on *anything* in Birkenstocks.
Probably won't affect cash position (Score:5, Insightful)
Re:Probably won't affect cash position (Score:4, Informative)
Its actually slightly higher than that - they're forecasting $45B over 3 years, but your point stands.
Simon
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Ipad sales were horrible over the weekend and the stock buyback is done to preserve the stock options of the board of directors when the stock crashes.
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If you listened to the actual recording of the conversation, you'd hear someone (can't remember who) ask how iPad sales went. Tim Cook said he wasn't going to talk much about it on this conference call, but that Apple had a record opening weekend of iPad sales.
So, I don't think they were horrible...
Simon
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No lines, plenty of stock are what I am hearing.
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I seem to remember (Score:5, Funny)
Didn't Steve Jobs say something like "Apple will only pay dividends over my dead body."
Too soon?
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They've got it backwards (Score:3)
The fundamental principle behind stocks is to buy low, and sell high. Not the other way around.
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.
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The stock market stopped making sense a long time ago.
It now operates in a seperate reality. The reality is completely ass-backwards, but everyone has agreed to work within it in the hopes that it favors them.
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You are drunk.
And since I am drunk and I'm noticing this - you probably are really drunk. Have some water, this should help with dehydration tomorrow.
When I was a boy... (Score:5, Insightful)
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.
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I'd say you got a very basic breakdown of how stocks work when you are a young boy. Dividends aren't always a part of the package, and that was the case way back in the olden days before tech companies too. I'd venture to say that most people gain cash on their stocks by selling them or borrowing against their "worth" in their portfolio. Dividends are nice, but don't typically pay for yachts and East Side apartments.
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That's not a "basic concept", its a misrepresentation that probably was intended as a lie-told-to-children [wikipedia.org] but which failed in its own basic purpose.
Re:When I was a boy... (Score:4, Insightful)
No, it wasn't true 15 years ago, nor was it ever true.
The "basic concept" that profit-sharing was the sole purpose of stock ownership has never been true as anything other than a gross and misleading oversimplification of a complex topic useful, if anything, as an introduction from which people would learn more -- i.e., a lie-to-children; sharing in net profits -- i.e., profits after reinvestment -- has always been a feature of joint stock companies, but a preference against reinvestment over redistribution has frequently been common throughout the history of joint stock companies, particularly ones where shares were readily tradeable assets, as is the case certainly with publicly traded companies.
Leaving aside tax treatment, for publicly traded stocks with an active market, increases in market value are essentially interchangeable with dividends, since with a an increase in stock market value investors can sell a proportional share of their stocks and extract the increase in value, and with a dividend investors can spend the dividend to acquire new shares to increase the total value of their holdings in the stock in question.
Investors came to prefer appreciation of stock value to dividends much longer than 15 years ago (I remember stories about this in the 1980s when I was in my teens) because dividends was taxed as normal income whereas income derived from stock value increases was taxed as capital gains (particularly, when the stock is held for more than one year, is taxed as long-term capital gains.)
As a result, management -- out of fiduciary duty to investors -- over time more and more sought to return value to investors through stock appreciation rather than dividends. So, instead of volatility in dividends based on market performance, you see more constant (and usually zero) dividends, and more volatile stock prices.
In 2003 tax policy changed to temporarily tax dividends as capital gains, but even though that change has been extended its always been a temporary cut with a programmed end date, and so predictably has had little effect on long-term strategy, though it does reduce the disincentive to one-time dividends.
Stock market bubbles due to factors like the ones you cite (without regard to whether they are accurate for the bubble you are trying to explain) demonstrably occur even when it is more usual to pay out dividends, since all they require is having a market in the stock. Dividends or the lack thereof are a minor factor, since the whole issue of bubbles is that the appreciation of market value is much greater than anything then is justified by assets on hand (including retained profits), so the choice to reinvest profits or distribute them as dividends is immaterial in the formation of market bubbles.
No, its not. None of that has anything to do with wages. (Sure, the total share that is returned to investors limits the amount available for any other costs, including wages, but whether it is returned in stock value appreciation or dividends is immaterial.)
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Somehow, this basic concept got completely wiped out by ...
... socially engineered tax laws.
If a company book value is $10 I wanna decide when to pay taxes on that $10, not have them decide to dole out $1/year of taxable income or whatever. The difference in marginal tax rate can be very high in the US, a substantial amount of lost money. I'd be pissed if I was near retirement age and owned APPL because I'd lose "lots" of money to taxes.
If we were a little less central govt controlled, and there were no tax implications, I'd STILL argue that if I bought a billion
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There's a distinction between companies that are growing earnings fast (as tech companies often are) and those that are in solid businesses but with little growth (e.g. utlity companies, or mature tech companies like Microsoft and IBM whose fast growth days are probably behind them).
For the slow or non-growing companies that are plenty profitable but not actually growing, then paying out earnigns in the form of dividends to shareholders makes sense - you get little growth in the share price, but get your di
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Exactly. The whole point of owning shares is to receive a part of the profits (dividends). Stock buy backs is also a way to reward stock owners since it increases the value of the remaining stocks.
The only reason to buy stocks in a non-dividend paying company is if you believe:
1. The company will grow and invest a lot and once their profits have multiplied they will pay huge dividends making up for the lost time.
2. A bigger fool will come along and buy your shares once the price has increased a lot.
This is
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Re:And at current share price (Score:4, Informative)
Well it's more like a 2% return because it gets issued quarterly.
10% yields are fairly unusual, and are typically a sign that a company is hurting. They are often the result of a big dive in a company's stock and are likely to be reduced because the thing that caused the company stock to dive is that their profits are diving - and the dividends are paid out of profits. Sometimes you see 10% dividends in highly leveraged situations or from companies that have special tax treatment. Be careful with these as these dividends can be volatile or require some gyrations on your part at tax time.
If you are a dividend investor the key thing is the long term record of increasing dividends. Apple isn't a blip on the radar compared with some of the better companies in this regard.
significance? (Score:2)
I don't trade stocks, but is this really a significant payout to shareholders?
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The price of the stock is unrelated, but the dividend in relation to the amount of cash apple has and their earnings is very low. But, that's the idea, it's a "token dividend", just to get the ball rolling. Presumably, they will increase the amount in the years to come, assuming they continue to be successful.
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When evaluating whether a company is a good investment as a dividend stock, one will often look at the dividend compared to the share price, also called the yield. Lots of blue-chip companies have yields of 1 - 5%. One could think of it in similar terms to the yield on a bond. This is one reason why people are putting huge amounts of money into the stock market - despite the volatility of share prices (even though, on the whole, they've been trending upwards for a yea
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For the funds that have a few million shares, it will make for a great year-end bonus for the fund manager.
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It depends on how significant the shareholder is.
Someone like Cook with 13k or so shares will make some nice pocket change.
He basically announced that he's giving himself and the other officers or board members a small bonus.
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Excellent move by Apple (Score:2)
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.
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.
Does this mean they will not invest in lawyers? (Score:2)
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?
I was hoping... (Score:5, Funny)
Offsetting stock options (Score:2)
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.
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If that wouldn't surprise you, then you don't know what you're talking about. Seems to me you either have some Apple stock and you'd like to see it go up further than you think it will without your blathering, or you genuinely have no idea how stocks mature. The company with the largest market capitalization in the world undergoing positive growth of 20-30% in under six months? Keep dreaming, buddy.