Quarterly dividend expected to expand Apple's shareholder base

Posted:
in AAPL Investors edited January 2014


With a higher-than-expected 1.8 percent yield, Apple's new $2.65 quarterly dividend is expected to expand its shareholder base to investors who previously passed on the stock because it did not pay out a dividend.



Analyst Gene Munster with Piper Jaffray noted on Monday that Apple's quarterly dividend represents an annual yield of about 1.8 percent, which is slightly higher than other big cap tech companies. He believes most on Wall Street were expecting Apple to offer a dividend with an annual yield closer to 1.5 percent.



"While the dividend has been widely expected, we believe that the dividend will make AAPL viable to a broader base of shareholders," Munster wrote in a note to investors on Monday.



In addition to the dividend, which Apple announced on Monday, the company is also initiating a $10 billion share repurchase program, representing about 2 percent of total shares outstanding. Together, the dividend and buyback are expected to cost Apple about $45 billion over the next three years.



Munster estimates that Apple will generate about $70 billion in operating cash flow in its fiscal year 2013, with 40 percent of that coming from the U.S. Excluding the dividend and buyback, he still expects Apple to generate between $11 billion and $13 billion in U.S. cash in the 2013 fiscal year.



"While some investors may have wanted some more visibility into future increases in the dividend, we believe the dividend achieves the main goal of expanding AAPL's share holder base," he said. "Given Apple will still be generating significant net cash, we believe the dividend could increase by 20% after the first year."





The growth trajectory of Apple's cash hoard, via Asymco.







Apple executives did indicate to analysts in a conference call that the new program will be reviewed "periodically." He said there will not be a set timetable for reviewing the dividend amount or share buyback program.



Munster also said on Monday that he still believes Apple sold more than one million iPads on last Friday's launch day, including pre-orders. He expects a slight upside to Wall Street's expectations of 10.2 million iPad sales in the March quarter.



Apple declined to reveal specific iPad sales figures on Monday, though Apple Chief Executive Tim Cook did say it was a record launch, and that he was "thrilled" with the initial response. AT&T also indicated that Friday was a record day for iPad activations and sales for the carrier.



[ View article on AppleInsider ]

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Comments

  • atomacatomac Posts: 13member
    How is paying a dividend helping Apple? It's not like they need extra capital to invest. It's also not true that Apple's successful last decade is because of the shareholders.



    I like to see 1998 as a reset.
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by aToMac View Post


    How is paying a dividend helping Apple? It's not like they need extra capital to invest. It's also not true that Apple's successful last decade is because of the shareholders.



    I like to see 1998 as a reset.



    Paying a dividend could result in longer stock retention. Wouldn't that increase it's stability?
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by aToMac View Post


    How is paying a dividend helping Apple? It's not like they need extra capital to invest. It's also not true that Apple's successful last decade is because of the shareholders.



    I like to see 1998 as a reset.



    How is having $100B in the bank helping Apple?
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by SolipsismX View Post


    Paying a dividend could result in longer stock retention. Wouldn't that increase it's stability?



    Maybe, but it doesn't matter. The fact is, owners of stock are entitled to a share of the company's profits, and Apple now has more money than they could ever need in the bank. That money should go to the shareholders, rich and poor, because they own the company.
  • mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by SolipsismX View Post


    Paying a dividend could result in longer stock retention. Wouldn't that increase it's stability?





    Apple's one and only responsibility is to earn money for the shareholders. If they pay a dividend the shareholders earn money and theoretically the stock price goes up due to the demand for stock that pays a dividend, hence shareholders earn more money. Plus the stock buy back also increases the price per share as it increases demand by decreasing supply and also signals that the financial officers and upper management view the stock as under valued. Overall the new programs should increase shareholder wealth.
  • aaadktdaaaadktda Posts: 5member
    Quote:
    Originally Posted by SolipsismX View Post


    Paying a dividend could result in longer stock retention. Wouldn't that increase it's stability?



    Since the dividend I'll be receiving will represent a 20% annual return on my investment in AAPL I will definitely be retaining my shares!
  • tenzotenzo Posts: 27member
    It's not like apple can't do anything now that they are offering a buyback and dividend. They are still sitting on billions of dollars.

    There really isn't anything you couldn't buy with 60 billion that you could of bought with 100 billion.
  • mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by cameronj View Post


    How is having $100B in the bank helping Apple?



    Steve Jobs learned the hard way and almost saw the company burned to the ground. The second time around he made sure that they have their own insurance in the form of a war chest. Apple may be riding high now, but only a few years ago analysts were claiming the likes of Motorola, RIM and Nokia as huge winners in the mobile space. So don't call Apple a winner, it can be a curse to be successful. The 100 billion is security. That is how it benefits the shareholders.
  • gqbgqb Posts: 1,934member
    Makes me kinda regret my 25% sell-off when it hit $500, but on the other hand, I am now playing with the house's money. Its not a 'gain' until you sell.

    Happy to still be in for 75%.

    My question now is whether or not to re-invest the dividends. Not a slam-dunk decision.
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by cameronj View Post


    The fact is, owners of stock are entitled to a share of the company's profits...



    There is a difference between issuing a dividend because it behooves Apple's goal and issuing a dividend because "owners of stock are entitled to a share of the company's profits." show me any law that states stock holders are entitled to anything more than the value of their share value.
  • charlitunacharlituna Posts: 7,068member
    Quote:
    Originally Posted by tenzo View Post


    It's not like apple can't do anything now that they are offering a buyback and dividend. They are still sitting on billions of dollars.

    There really isn't anything you couldn't buy with 60 billion that you could of bought with 100 billion.



    perhaps not a single item sure. but if you were looking to buy a chuck of factories, land, fund a scholarship for engineers etc to run the place etc, losing $40Billion could slow down those plans



    Which is why I think that Apple is doing what they are doing. They would have looked at the various options, perhaps have been for a couple of years, and tried to find the ones that wouldn't really change the game much in the long run. These would be what they feel fit that bill. It might mean that they can only set up 3 factories and not all 5 that they want right off, but they might believe that is okay because they will gain back the money over the next couple of years and it will still be there when they are actually ready to start work on factories 4 and 5. No real loss.



    And the positive PR they get from this, meager though it perhaps seems for many shareholders, will be invaluable.



    And I think Mr Munster will be surprised when it turns out that Apple sold 1 million iPads this week just in the US. The iPad 2 launch weekend was something like 600k and there are more stores in the US than last year, so they can reach more folks just with Apple locations. And you have all those folks that didn't update to the iPad 2 which was like 300k just on that launch weekend. Plus an easy 300k more that have the iPad 2 and are updating that. it's not a stretch to think that 400k folks are finally impressed with the iPad 3 and bought it either for personal use, work or school or a combo. or that businesses didn't get in on the game as well. I would say 750k on the lower end
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by mstone View Post


    Steve Jobs learned the hard way and almost saw the company burned to the ground. The second time around he made sure that they have their own insurance in the form of a war chest. Apple may be riding high now, but only a few years ago analysts were claiming the likes of Motorola, RIM and Nokia as huge winners in the mobile space. So don't call Apple a winner, it can be a curse to be successful. The 100 billion is security. That is how it benefits the shareholders.



    As large as $100 billion is it's not that much when Apple is spending several percent of that on a single comment investment. Add to the fact that it's paying that out from cash in likely one country you have a much smaller purse to pull from.



    Perhaps no one but Dr. M recalls but I was against Apple issuing dividends because I didn't think they had a large enogh cushion for a modern tech company. Last Autumn I determined Apple's US holdings and projected growth made it feasible. From what I can tell Apple's war chest will continue to grow, not shrink, just at a slower percentage rate than before.
  • thataveragejoethataveragejoe Posts: 830member
    Quote:
    Originally Posted by mstone View Post


    Apple's one and only responsibility is to earn money for the shareholders..



    It's amazing how many people seem to forget this.
  • tenzotenzo Posts: 27member
    Quote:
    Originally Posted by charlituna View Post


    And the positive PR they get from this, meager though it perhaps seems for many shareholders, will be invaluable.



    One thing alot of people fail to mention with this is that the stock now has yield support. (It may be little but it is still there). Should help make some of the shorters out there think twice about shorting this stock now. IMHO
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by mstone View Post


    Apple's one and only responsibility is to earn money for the shareholders.



    Is that accurate? I thought the goal was to increase its value which is why companies decide to go public in the first place. Earning money for its shareholders is a causal relationship to further increase it's value.
  • debaserm3debaserm3 Posts: 1member
    Quote:
    Originally Posted by mstone View Post


    Apple's one and only responsibility is to earn money for the shareholders.



    Perhaps in a pure, capitalist sense, that is true. But what I think Apple realizes is that their one and only responsibility is to make "insanely great" products. If you make products that are insanely great, and delight and wonder people, chances are the rest (money for shareholders) will follow.



    Tech companies that are too focused on making money for shareholders squander their assets and consumer goodwill by relentlessly focusing on the bottom line. They make ill-advised purchases of other companies and let their corporate board drive the company, all the while only looking at the next earnings statement. Perhaps the greatest example of this is HP, which is a total trainwreck of a company I have lost all respect for. Everything they make that I have touched recently, you can feel that drive to make money for the shareholders.
  • vthreevthree Posts: 13member
    Where are people getting the only 60M left in the war chest figure from?



    First of all, the dividend won't be given out until Q4. And considering that Apple is going to make at least 9B this quarter and even more in subsequent quarters since q2 is traditionally weak. Apple's war chest will actually be getting bigger. But instead of growing $16B per quarter like the previous quarter, they will only grow $13B due to dividend and buyback. It would not surprise me if Apple will hit the 200B cash mark sometime in late 2013.
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by debaserm3 View Post


    Perhaps in a pure, capitalist sense, that is true. But what I think Apple realizes is that their one and only responsibility is to make "insanely great" products. If you make products that are insanely great, and delight and wonder people, chances are the rest (money for shareholders) will follow.



    Tech companies that are too focused on making money for shareholders squander their assets and consumer goodwill by relentlessly focusing on the bottom line. They make ill-advised purchases of other companies and let their corporate board drive the company, all the while only looking at the next earnings statement. Perhaps the greatest example of this is HP, which is a total trainwreck of a company I have lost all respect for. Everything they make that I have touched recently, you can feel that drive to make money for the shareholders.



    Making great products are a means to an end. The goal is still to increase profit. The difference between Apple and other companies is that Apple cherishes buyer retention more than other companies which shows a difference in perception that focuses on the longterm instead of the short-term.





    Quote:
    Originally Posted by Vthree View Post


    Where are people getting the only 60M left in the war chest figure from?



    First of all, the dividend won't be given out until Q4. And considering that Apple is going to make at least 9B this quarter and even more in subsequent quarters since q2 is traditionally weak. Apple's war chest will actually be getting bigger. But instead of growing $16B per quarter like the previous quarter, they will only grow $13B due to dividend and buyback. It would not surprise me if Apple will hit the 200B cash mark sometime in late 2013.



    Doing some very dirty mental calculations I'd be surprised if they drop below $100 billion.
  • mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by SolipsismX View Post


    Is that accurate? I thought the goal was to increase its value which is why companies decide to go public in the first place. Earning money for its shareholders is a causal relationship to further increase it's value.



    Pretty much the same thing. Shareholder wealth is proportionate to company value. If you were to do as Mr. Dell once proposed, sell it and give the money back to the shareholders that is what you would hope to get. Your share of the actual value of the company. That is what happens in mergers and acquisitions, theoretically.
  • digitalclipsdigitalclips Posts: 15,156member
    Quote:
    Originally Posted by SolipsismX View Post


    As large as $100 billion is it's not that much when Apple is spending several percent of that on a single comment investment. Add to the fact that it's paying that out from cash in likely one country you have a much smaller purse to pull from.



    Perhaps no one but Dr. M recalls but I was against Apple issuing dividends because I didn't think they had a large enogh cushion for a modern tech company. Last Autumn I determined Apple's US holdings and projected growth made it feasible. From what I can tell Apple's war chest will continue to grow, not shrink, just at a slower percentage rate than before.



    That last part is what many seem to be missing in the reports I'm reading. Many are claiming this shows Apple think they have stopped growing and they will deplete their reserves. I think you are dead right, the war chest will still grow with a slight lowering of the incline in the graph, that's all.
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