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.'"
In case anyone was wondering when Tim Cook... (Score:1, Informative)
...would assert himself as his own CEO, keep in mind that this never would have happened under Steve Jobs.
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).
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: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
Re:Context? (Score:2, Informative)
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:When I was a boy... (Score:2, Informative)
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.
Re:Context? (Score:3, Informative)
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".
Re:Lawsuits (Score:1, Informative)
That's interesting, mostly because you're completely stupid.
A "war chest" is a reserve of funds in case you need it - for acquisitions, research, or anything else. Of course, it sounds better to call it a "war chest" than "Tim Cook's special rainy day piggy bank."
Jesus fucking christ, you people will look for any excuse to paint Apple as nothing but a patent troll. Look at their products, and you can see that's clearly not the case, but then, nobody ever accused the fandroids of having an excess of common sense.
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.
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.
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.
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.
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:4, Informative)
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.
Re:Context? (Score:2, Informative)
There's an actually simpler reason and it's based upon both the law and Generally Accepted Accounting Principles. The first element is Retained Earnings. The IRS generally allows a maximum of 20 percent retained earnings and it's also codified into the GAAP rules (CPA's follow them). What this means is that about 80 percent of the cash Apple has on hand can be seized as a Tax, which gets the board sued, maybe they end up paying part of that out of their pockets and fired for failing their fidicuary responsibility. How does a company avoid this issue. They either pay a dividend to shareholders (declared is no longer retained earnings) or as buy back their stock, which reduces the cash on hand and as Apple has stated, they'll be doing both.
What I suspect has happened, is that the IRS basically told Apple the same thing they did MS. Either start paying out a dividend or you will loose 70-80 percent of that money as a special tax and now that Jobs is gone, the RDF is fading, thus Apple has to do something or loose the cash.
There are a few accepted exceptions to this 80 percent rule and they are as I stated, declared dividends, open negotiations with funds designated (those investments/purchases Apple made) and many others that I don't know of.
One thing that Apple could be planning is buying back enough stock to delist the company. In other words, they could take it private, which changes the retained earnings rule quite a bit. A good example of this is the Bershire Hathaway Stock. Highly valued but not publically traded nor is the company a public company. Google it.
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.