Special Report: Tim Cook fields questions on Apple dividends, a stock split, iTunes content deals

Posted:
in AAPL Investors edited January 2014


Apple's chief executive Tim Cook addressed two stock related issues that have been topics of interest to company investors: the payment of dividends and a possible stock split, while speaking to shareholders this morning.



Among other questions Cook addressed in the meeting, one shareholder referenced Apple's nearly $100 billion cash pile but asked that Apple not issue a regular common dividend as many pundits have suggested.



Instead, he suggested Apple invest more of its resources into obtaining content for iTunes, matching and improving upon the TV and movie streaming offerings of Netflix and Hulu Plus, building a subscription or a la cart offering for all content, rather than attempting to buy an existing content provider service.



He also suggested that if Apple decided to issue a dividend, it should limit it to preferred shareholders, as a regular dividend would likely be subject to new taxes on the horizon and could have the effect of scaring off regular investors, ultimately using Apple's cash less effectively than the company could itself through direct investment.



Cook responded very much the same as Jobs historically often had, with prepared comments on the general subject before addressing the shareholder's specific comments. Cook noted Apple now has more cash than it needs to run its business, after noting that Apple already spends billions on infrastructure, building out retail, and buying small companies and making IP purchases.



"We spend a lot, but we still have a lot," Cook said, reiterating a comment he previously made in a conference hosted by Goldman Sachs earlier this month.



Cook then addressed the specifics of the question, noting that Apple has lots of content, "most everything" in the music business and around 40,000 movies and 70,000 TV shows, but that it "was not there for the profit," noting that the iTunes Store is targeted to run at break even as a convenience to users, not as a business.



Apple "makes its month from hardware," Cook stated. He specifically added that cable deals were a "complex piece," adding that the economics behind a la carte deals for content providers were "too powerful for the people there," noting that "the reality of an a la carte system like you've described is not likely."



Phil Schiller also noted that Apple aimed to strike a balance between parties, with iTunes' music offerings seeking find a workable middle ground between customers and artists, but noting that that balance is more difficult to find in the cable business.





Outside Apple's 2012 shareholders meeting. | Source: CNet







To split or not



Another shareholder addressed the question of a possible stock split, asking Cook to outline the pros and cons of such a possibility rather that actually recommending a split or not.



Cook stated that Apple's board has been considering both dividends and stock splits very carefully, seeking to do what was best for its shareholders. In examining other companies that had done a stock split, Cook noted that they found that in most cases "a stock split does nothing."



A stock split may cause an initial pop in share prices, thought by some to be related to making a stock seem more affordable to small investors, but over time that price jump returns back to where it was, Cook said.



A possible negative result of a split, Cook pointed out, is that the split simply results in more stocks being issued, resulting in more transactional costs for some buyers, with no real change in value.



[ View article on AppleInsider ]

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Comments

  • cpsrocpsro Posts: 2,151member
    I feel the higher transaction costs associated with a stock split would be insignificant--not even worth mentioning. A split would make it easier for small investors to jump in at the price they want and jump out at the price they want. A high share price really only benefits medium- to large investors, and very little at that.
  • chabigchabig Posts: 600member
    Quote:
    Originally Posted by Cpsro View Post


    I feel the higher transaction costs associated with a stock split would be insignificant--not even worth mentioning. A split would make it easier for small investors to jump in at the price they want and jump out at the price they want. A high share price really only benefits medium- to large investors, and very little at that.



    I disagree. Even at $500 per share, the minimum investment is $500. So a split is only really catering to people who have less than $500 to invest, and that's a very small audience.
  • anantksundaramanantksundaram Posts: 17,383member
    Quote:
    Originally Posted by Cpsro View Post


    I feel the higher transaction costs associated with a stock split would be insignificant--not even worth mentioning. A split would make it easier for small investors to jump in at the price they want and jump out at the price they want. A high share price really only benefits medium- to large investors, and very little at that.



    Apple shouldn't bother with shareholders who want to 'jump in....and jump out'. Moreover, it is just as easy for me to sell/buy 2 shares of Apple as it is 20 (assuming a 10:1 split, which would be a massive split), if I was after ~$1000. Also, consider that 70+% of Apple shareholders are institutions, and are far more likely to be the marginal investor (i.e., the ones that jump in and out).



    Cook is right: stock splits do nothing.
  • mknoppmknopp Posts: 257member
    I have a hard time believing that they couldn't setup an a la carte system. However, I think that they should focus more on setting up a subscription service comparable to that offered by Amazon, Netflix, and Hulu Plus now. Oh, and for those of you who don't think that this is possible. Consider that for that $100 billion in cash they could come close to buying all four major networks.



    That being said, I think that a better use of their money would be to purchase companies to bolster and strengthen their Siri interface. Perhaps buy Nuance or one of Nuance's competitors to strengthen the speech to text side of the service, or even better would be to bolster the actual AI part of Siri. A purchase of some of the more promising Siri alternatives could help shore up the talent and hopefully acquire some important IP.
  • sacto joesacto joe Posts: 604member
    Quote:
    Originally Posted by anantksundaram View Post


    Apple shouldn't bother with shareholders who want to 'jump in....and jump out'. Moreover, it is just as easy for me to sell/buy 2 shares of Apple as it is 20 (assuming a 10:1 split, which would be a massive split), if I was after ~$1000. Also, consider that 70+% of Apple shareholders are institutions, and are far more likely to be the marginal investor (i.e., the ones that jump in and out).



    Cook is right: stock splits do nothing.



    Agreed. Also, people who pop a big chunk of change for a single share are more likely to be interested in the long game than the short game. That reduces volatility, which is again good for long players. It becomes a self-fulfilling prophecy of sorts.
  • cpsrocpsro Posts: 2,151member
    Quote:
    Originally Posted by chabig View Post


    I disagree. Even at $500 per share, the minimum investment is $500. So a split is only really catering to people who have less than $500 to invest, and that's a very small audience.



    Investors still almost always buy/sell in lots of 100. When buying/selling an "odd lot", it's more difficult to obtain the price one wants. That will tend to cost small investors real money--a far higher percentage of the total price than the extra fees associated with large stock purchases.



    Go ahead and overhype "jump in" and "jump out". Higher share prices disproportionately hurt small investors.
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by Cpsro View Post


    Go ahead and overhype "jump in" and "jump out". Higher share prices disproportionately hurt small investors.



    We can prove this to be the case by looking at stocks that are hundreds of thousands of dollars per share. It's easy to argue that a 2:1 split won't do much or that $500 is still within a decent range but what about $1000 or $10,000 per share? How many stocks are that high and why have Apple and other companies done stock splits in the past if there is no positive effect? Surely no one thinks that stock split comprehension is new.
  • chabigchabig Posts: 600member
    Quote:
    Originally Posted by Cpsro View Post


    Investors still almost always buy/sell in lots of 100. When buying/selling an "odd lot", it's more difficult to obtain the price one wants.



    Everything you say used to be true a long time ago when full service brokers ruled Wall Street. But it hasn't been true since online trading began. Here's a statement from an online brokerage: http://research.scottrade.com/public...31d3f18690672f
  • charlitunacharlituna Posts: 7,083member
    Quote:
    Originally Posted by mknopp View Post


    I have a hard time believing that they couldn't setup an a la carte system. However, I think that they should focus more on setting up a subscription service comparable to that offered by Amazon, Netflix, and Hulu Plus now. Oh, and for those of you who don't think that this is possible.




    Apple could do whatever it wants if the power was in their hands. It's not. It belongs to the studios and the networks and they don't agree in the value of a la carte systems, removing DRM, bumping quality to 1080p at any bit rate, adding multi language audio/titles, lowering prices, lowering wait times, much less all of those things.



    But it is good to see Tim publicly commenting that Apple isn't giving up on such things.
  • cpsrocpsro Posts: 2,151member
    Quote:
    Originally Posted by chabig View Post


    Everything you say used to be true a long time ago when full service brokers ruled Wall Street. But it hasn't been true since online trading began. Here's a statement from an online brokerage: http://research.scottrade.com/public...31d3f18690672f



    That posting only relates to the commissions/fees associated with trading in odd lots. I've been talking about the price one gets for the shares. It's more difficult to hit a specific or desired price when trading odd lots. Look at the active trading boards and you'll rarely see odd lot orders listed.
  • chabigchabig Posts: 600member
    Quote:
    Originally Posted by Cpsro View Post


    That posting only relates to the commissions/fees associated with trading in odd lots. I've been talking about the price one gets for the shares. It's more difficult to hit a specific or desired price when trading odd lots. Look at the active trading boards and you'll rarely see odd lot orders listed.



    Let's say you want to buy AAPL today. It's trading right now at $516. Do you think a few cents per share on the price really matters? And on a highly liquid stock like AAPL, the spread is just cents.
  • chabigchabig Posts: 600member
    Quote:
    Originally Posted by SolipsismX View Post


    We can prove this to be the case by looking at stocks that are hundreds of thousands of dollars per share.



    There is only one stock that trades over $100,000. Only 408 trade over $10,000.
  • jdwjdw Posts: 387member
    Well, if dividends are only going to "preferred shareholders" then I want Cook to explain to me how I can become one. And if such is not possible, then it is clear we would have a situation where a small group of wealthy, elitest "preferred shareholders" are getting yet more on top of what they already have. In such a case, how is making that small group of wealthy elite even more rich via Dividends better for Apple or AAPL stock? It would seem only logical that a Common Stock Dividend (i.e., share the wealthy with everyone who owns AAPL) would be the best course of action, if a Dividend was deemed "good" at all.
  • digitalclipsdigitalclips Posts: 15,711member
    ambiguous .. so deleted
  • solipsismxsolipsismx Posts: 19,566member
    Quote:
    Originally Posted by digitalclips View Post


    If he gives me a 5:1 split and "but over time that price jump returns back to where it was" ... then I am 5 times better off! I'll live with that problem Tim.



    Perhaps it's just a psychological limitation on my part but I have trouble believing that it would just as long for a stock at $500 to reach $2500 than it would 5x as much stock to reach $500 from $100. There a lot more factors at play than the simply division of the stock value.
  • digitalclipsdigitalclips Posts: 15,711member
    Quote:
    Originally Posted by SolipsismX View Post


    Perhaps it's just a psychological limitation on my part but I have trouble believing that it would just as long for a stock at $500 to reach $2500 than it would 5x as much stock to reach $500 from $100. There a lot more factors at play than the simply division of the stock value.



    I'd agree with you. Is that the Law of Small NUmbers?



    On re reading slowly I don't think he meant it would return to pre split price, rather the gain would evaporate. I'd disagree with Tim on that but that's another debate.



    Heck if they are convinced a split won't have any effect then I'd say why not try it? I'd love 5x the stock to see if I'm right ... if not what is lost?
  • desuserigndesuserign Posts: 1,316member
    Quote:
    Originally Posted by Cpsro View Post


    That posting only relates to the commissions/fees associated with trading in odd lots. I've been talking about the price one gets for the shares. It's more difficult to hit a specific or desired price when trading odd lots. Look at the active trading boards and you'll rarely see odd lot orders listed.



    What Scottrade fails to tell you on that page is that you can only specify "All Or None" on trades of 100 shares or more. So if you have an odd lot your trade may be made in multiple lots which can cost 1.5 or more times the $7 "flat rate."



    Then there's the fact that options can only be traded in lots of 100. It makes it pretty hard for the small investor to use options to protect his stocks.



    I personally would like to see the stock split (4 or 5 to 1.) I'd rather own 1000 shares than 200 just for convenience
  • oldmacguyoldmacguy Posts: 151member
    Quote:
    Originally Posted by JDW View Post


    Well, if dividends are only going to "preferred shareholders" then I want Cook to explain to me how I can become one. And if such is not possible, then it is clear we would have a situation where a small group of wealthy, elitest "preferred shareholders" are getting yet more on top of what they already have. In such a case, how is making that small group of wealthy elite even more rich via Dividends better for Apple or AAPL stock? It would seem only logical that a Common Stock Dividend (i.e., share the wealthy with everyone who owns AAPL) would be the best course of action, if a Dividend was deemed "good" at all.



    Indeed. This would just be another instance of the one percenters gettin' while all us 99ers who have stood by the company, good times and bad, get nothing.
  • kent909kent909 Posts: 656member
    Well that's not what I wanted to hear. I wonder if by saying "too powerful" he meant that their little pea brains can't comprehend anything new and different?
  • desuserigndesuserign Posts: 1,316member
    Quote:
    Originally Posted by OldMacGuy View Post


    Indeed. This would just be another instance of the one percenters gettin' while all us 99ers who have stood by the company, good times and bad, get nothing.



    If you want preferred stock, just buy it.

    Preferred stock is really a different instrument from common stock, but if you want it, it can be purchased.
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