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?
The beginning of the end (Score:0, Insightful)
That's how decline starts.
Probably won't affect cash position (Score:5, Insightful)
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.
Re:Context? (Score:2, Insightful)
On the other hand, it does shift Apple stock ever-so-slightly into the land of more-stable/less-risky investment. With a few % dividend return, you can invest in AAPL and not worry so much about short-term successes or failures. This is indeed a rather cheap way for Apple to maintain the value of their stock, and draw in new investors.
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"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.
Re:Context? (Score:1, Insightful)
Apple market cap: $550 billion
Shareholder equity: $90 billion
That's a boatload of expected future earnings implied in that difference right there. The dividend return is total crap, and only a fool would buy back shares that are priced this high. (For the uninformed: you buy back shares when they are CHEAP so you can re-issue shares when the stock price is higher later on to keep investment money flowing through the business.) This is short-term thinking by Cook to maximize his parachute, plain and simple.
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.
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.
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."
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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?
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).
Apple is going to be stagnant. (Score:2, Insightful)
I also have a degree in Finance and a Masters ( dumbest fucking thing I ever did.)
Essentially, Apple is saying "our shares are undervalued".
Or, they don't have a clue what to do with the money because they're out of ideas; which is a bad sign. Granted, distributing the money to stockholders is a hell of a lot better than an acquisition (acquisitions almost always involve paying waaayy too much for the target. ).
In my opinion (which is not much better than anyone else's), this is a bad sign. It is a sign that Apple is becoming stagnant and the iPad, iPhone, iTouch, and everything else they currently make is it. After the Apple gizmo fad wears off, they'll go into their cash cow phase - you should remember that from your strategy class.
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.
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: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.)
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.
Re:Context? (Score:2, Insightful)
AAPL Market Cap = $556b revenue: ~110b
Walmart Market cap = $208b revenue: ~447b
Exxon market Cap = $410b revenue: ~433b
The real question to a company the size of apple is where and how do they achieve future growth, and what risks are associated with this growth. Yes the ipad, ipod, iphone, etc.. have been wildly popular and profitable. However, the value of a company is by definition the present value of all future cash flows. This begets the question, "can apple continue to generate $110billion in revenue with near 25% net margins for the next 5, 10 years? Can they continue to grow at greater than 10% / year at this rate, putting them at 200billion in revenue by 2019?" If they can't, or if you think there is risk they won't be able to, then the valuation is high.
As for the buyback, given the risks and current valuation, would you the shareholder rather receive cash, which you can reinvest as you see fit, or would you prefer management buy more of apple's stock at current values? It is the shareholder's money after all.
Growth gets much harder to achieve the bigger you get. Also as the products mature, margins will likely compress. Tree's can't grow to the sky, just as companies can't become 100% of global GDP.
Re:Context? (Score:2, Insightful)
As much as we might like to reduce economics to pure science, it doesn't work that way. It's driven just as much by emotion as it is cold, hard numbers. How else do you think things like the dotcom and housing bubbles occurred? People were investing on advice as simplistic as, "Hey, you heard about this Internet thing? Better get on board or you'll miss out on millions!"
The same applies just as much to public companies. It's not as if most stockholders have any idea what's going on at Apple from a day-to-day basis. Investor decisions are made based on gut feelings and educated guesses, or they're made with the benefit hindsight, but never with perfect information.
After all, if we had perfect information about the economy in real-time, all the time, there'd be no reason to let humans do the investing at all. Just assign computers to parse that information and make all the decisions, since the information is perfect (and we are assuming, of course, that it is true information.)
Re:In case anyone was wondering when Tim Cook... (Score:3, Insightful)
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.