Dividend seen creating 'scarcity issue' for under-owned Apple stock

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Comments

  • bwikbwik Posts: 534member
    Something you learn in behavioral economics is that when prices go up to an expensive level, people are slow to sell, and eager to buy. They believe that prices tend to increase, so why wouldn't you buy a lot? After all, the most expensive asset in the world has a quantifiable record of making people extremely rich.



    When prices crash to a low level, people are terrified of buying, and wish to sell. After all, when prices decline, it is evident that people who own that thing tended to lose money.



    So, for the average person, they lust after expensive assets and spurn cheap assets. This is like being wrong 100% of the time.



    Buying AAPL today is a worse idea than it has ever been in history. That's simply a fact. I am not saying it will go down. I am not trying to tell people don't buy it. Just saying now is not a "good" time... it is a "bad" time... just offering that.



    In 2009, it was a great time to buy stocks. Epically great. But did people emotionally want to do that? Worth thinking about.
  • ksecksec Posts: 1,142member
    Please Dont give back dividends. They should just continue to invest.



    Most of the so called "CASH" aren't even inside US. And those inside US are continued to be used as operational cost and expenses. R&D, and buying up other IPs or companies like Chomp.
  • backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by ksec View Post


    Please Dont give back dividends. They should just continue to invest.



    Most of the so called "CASH" aren't even inside US. And those inside US are continued to be used as operational cost and expenses. R&D, and buying up other IPs or companies like Chomp.



    Apple can pay a dividend and not touch their enormous cash horde.



    Apple is easily throwing off 2-4 billion of profits per quarter. That could pay a $2 per share quarterly dividend and still add 1-2 billion of profits to their coffers.



    And with 100 billion of cash they have more than enough to fund any purchases they might want to make.
  • sunilramansunilraman Posts: 8,133member
    My tirades against the financial industry aside, what's wrong with this picture? The most sought-after, desirable and highest-market-cap stock is "under-owned"? Am I missing something?
  • sunilramansunilraman Posts: 8,133member
    Quote:
    Originally Posted by backtomac View Post


    Apple can pay a dividend and not touch their enormous cash horde.



    Apple is easily throwing off 2-4 billion of profits per quarter. That could pay a $2 per share quarterly dividend and still add 1-2 billion of profits to their coffers.



    And with 100 billion of cash they have more than enough to fund any purchases they might want to make.



    This is what I don't understand. Why would a company with all that money need to issue dividends? There is no logical reason, in my mind. It doesn't need to raise more cash, and it doesn't need to push up the stock price or grow market or mindshare through the stock market.
  • sunilramansunilraman Posts: 8,133member
    10 years ago I learnt about the "food pyramid" of investing. At the bottom is savings accounts, term deposits, in the middle stocks and at the top high-risk stuff.



    I think it still applies. As much as I want to go out and put tons of money in Apple stock, that upsets the investing food pyramid, and this would be one heck of an indigestion.



    Still, for some people, getting in at $522 is not too shabby, Apple should be on track for $600 ~ though I would classify getting in now as mid-to-high risk, IMHO.



    Quote:
    Originally Posted by bwik View Post


    Something you learn in behavioral economics is that when prices go up to an expensive level, people are slow to sell, and eager to buy. They believe that prices tend to increase, so why wouldn't you buy a lot? After all, the most expensive asset in the world has a quantifiable record of making people extremely rich.



    When prices crash to a low level, people are terrified of buying, and wish to sell. After all, when prices decline, it is evident that people who own that thing tended to lose money.



    So, for the average person, they lust after expensive assets and spurn cheap assets. This is like being wrong 100% of the time.



    Buying AAPL today is a worse idea than it has ever been in history. That's simply a fact. I am not saying it will go down. I am not trying to tell people don't buy it. Just saying now is not a "good" time... it is a "bad" time... just offering that.



    In 2009, it was a great time to buy stocks. Epically great. But did people emotionally want to do that? Worth thinking about.



  • misamisa Posts: 637member
    Quote:
    Originally Posted by herbapou View Post


    I dont think there are preferred shares available yet. They will need to set them up if they go that way. I am not sure how income funds buying preferred shares will impact the common shares. Preferred shares prices dont move a lot, which is good for the yield since its stays the same, but I dont see how this could help rise the price of common shares.



    The last entity to own Apple's preferred stock was Microsoft:

    http://www.wikinvest.com/stock/Apple...referred_Stock

    Scroll down to Dec 19, 2003.



    Quote:

    Preferred Stock



    In August 1997, the Company and Microsoft Corporation (Microsoft) entered into patent cross license and technology agreements. In addition, Microsoft purchased 150,000 shares of Apple Series A nonvoting convertible preferred stock ("preferred stock") for $150 million. These shares were convertible by Microsoft after August 5, 2000, into shares of the Company's common stock at a conversion price of $8.25 per share. During 2000, 74,250 shares of preferred stock were converted to 9 million shares of the Company's common stock. During 2001, the remaining 75,750 preferred shares were converted into 9.2 million shares of the Company's common stock.



  • backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by sunilraman View Post


    This is what I don't understand. Why would a company with all that money need to issue dividends? .



    To reward shareholders. They are owners of the business and should get a share of the profits. That's why people invest in businesses and own stocks.



    I think that the reason that Apple is 'under owned' and undervalued by some metrics is two fold. One, some institutional investors can only hold dividend paying stocks. I don't think this is a large number but some certainly are. Secondly, I think some may be avoiding Apple because they have not shown that they shareholder friendly. Issuing a dividend or buying back stock, another reasonable use of their cash, would show a commitment by Apple to enhance shareholder value.
  • technarchytechnarchy Posts: 296member
    The mobile landscape is growing and becoming more competitive.



    Apple should save the cash for R&D and innovation.
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by Technarchy View Post


    The mobile landscape is growing and becoming more competitive.



    Apple should save the cash for R&D and innovation.



    If apple spends even 10% of that cash on an expense that flows to the income statement the stock will tank so hard you'll beg them to do a dividend instead. Hell, you'll beg them to burn the cash instead.
  • syracusesyracuse Posts: 73member
    Quote:
    Originally Posted by sunilraman View Post


    This is what I don't understand. Why would a company with all that money need to issue dividends? There is no logical reason, in my mind. It doesn't need to raise more cash, and it doesn't need to push up the stock price or grow market or mindshare through the stock market.





    When/If Apple issues a dividend, that DOES NOT raise cash for Apple.



    The analyst makes the point and shows the statistics that Apple is under owned by the Fund industry and in particular Funds that invest in dividend paying stocks.



    Do people even read the articles that they comment on? Or do they just make comments to be disagreeable?
  • backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by Technarchy View Post


    The mobile landscape is growing and becoming more competitive.



    Apple should save the cash for R&D and innovation.



    They have MORE than enough for this.



    Apples server farm in North Carolina cost 1-2 billion IIRC.



    The new 22 nm chip fab facility Intel is built to make Ivy Bridge chips cost 5 billion.



    Apple bought Chomp for 50 million (already paid for in the time you took to read this)



    Anobit reportedly cost 500 million.



    Apple have 100 billion in cash and raised 13 billion in profits in the last quarter.
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by backtomac View Post


    They have MORE than enough for this.



    Apples server farm in North Carolina cost 1-2 billion IIRC.



    The new 22 nm chip fab facility Intel is built to make Ivy Bridge chips cost 5 billion.



    Apple bought Chomp for 50 million (already paid for in the time you took to read this)



    Anobit reportedly cost 500 million.



    Apple have 100 billion in cash and raised 13 billion in profits in the last quarter.



    Yeah you never know when hard times might hit. Duhhhhh Think of it as a rainy day...er, week... er, year... er, decade... er century fund.
  • macarenamacarena Posts: 316member
    At the end of the day, one has to evaluate what one can earn on the money, and what one can buy with the money. If you can buy something that earns you more than what the money itself earns you, then you are better off buying that with your money.



    In Apple's case, the stock trades at a Forward P/E of about 11. If you invert that, then E/P is 1/11. That means, Apple shares earn about $1 for every $11 of Price - so that works out to a yield of just over 9%.



    The cash on the other hand has two types of earnings - one is the yield on the cash when it is invested into Long Term and Short Term securities. In current market conditions, this would be anywhere from 1-4%, so lets assume that Apple earns about 2.5% on their securities investments. The other type is invested in prepaying for components, or for investing in plants on behalf of partners, to lower their component costs. It is difficult to calculate a yield for this investment.



    However, the beauty is that Apple is obviously not going to use its entire cash hoard to buy back its stock. So we can ignore the second type (component investment). If you just consider the first type, it is very obvious that it is much better for Apple to invest in its own shares than in Securities.



    There is yet another advantage to buying back shares. It is perfectly legal for Apple entities overseas to buy Apple shares with the cash they own. And they don't have to pay tax on the cash - if it is used to buy back shares. The entire transaction can be conducted overseas - where some overseas investment bank buys Apple shares on behalf of the overseas entity, and the overseas entity buys these shares from the investment bank. This sort of transaction is the simplest way for Apple to avoid the proposed Obama tax on foreign earnings.
  • macarenamacarena Posts: 316member
    Outside of a share buy back, the next best option for Apple is to use some of this cash to prise open a market that otherwise would be impossible to play in.



    For instance, take the US Cable business. Entrenched players like Comcast and content owners are unlikely to allow Apple to offer a subscription model or competitive ala carte pricing of channels.



    While they will be forced to play with Apple for antitrust reasons, they are not obliged to offer Apple the terms it needs. In such a scenario, Apple could probably attempt a power play - pay the content owners what they want, while offering customers what it wants to offer.



    Maybe they will lose about $20-$30 per month per subscriber doing this. Say $300 a year. If they can sign up 10 million US households into this model, that would be $3 billion a year.



    Now would you rather Apple paid out 3 Billion in an inefficient dividend, or spent that $3 billion to prise open cable TV market? Apple is probably the ONLY company that can pull this off. Even if it costs $10B a year, Apple can sustain this for 2-3 years easily and prise open this market.



    Over those 3 years, Apple can invest in original content creation, etc to fully crack open the market. And to ensure that this becomes profitable. Or without losing money - similar to everything else on iTunes.



    Would it be wise to do this? Wresting control of the TV market could really be a huge thing if successful. But to be successful in this, Apple needs to perfect a few things. Create the best possible interface for the end user, invest in massive data centers to support all this media streaming, sort out all the issues with iAd so that they can monetize this offering with ads of their own to offset some of the losses (or offer even cheaper plans to the subscriber). And most importantly, have enough money in the bank so no one thinks Apple is pulling a bluff on them!



    In some ways, Amazon is playing what should be Apple's script. Willing to lose money on devices, willing to offer all you can watch content deals at ridiculously low price per year, and investing in creating original content. What Amazon is doing with Kindle fire, Apple can do with the Apple TV - without losing money on the device, with a much higher monthly subscription price than Amazon is asking for, better content coverage, etc.
  • syracusesyracuse Posts: 73member
    Quote:
    Originally Posted by macarena View Post


    Outside of a share buy back, the next best option for Apple is to use some of this cash to prise open a market that otherwise would be impossible to play in.



    For instance, take the US Cable business. Entrenched players like Comcast and content owners are unlikely to allow Apple to offer a subscription model or competitive ala carte pricing of channels.



    While they will be forced to play with Apple for antitrust reasons, they are not obliged to offer Apple the terms it needs. In such a scenario, Apple could probably attempt a power play - pay the content owners what they want, while offering customers what it wants to offer.



    Maybe they will lose about $20-$30 per month per subscriber doing this. Say $300 a year. If they can sign up 10 million US households into this model, that would be $3 billion a year.



    Now would you rather Apple paid out 3 Billion in an inefficient dividend, or spent that $3 billion to prise open cable TV market? Apple is probably the ONLY company that can pull this off. Even if it costs $10B a year, Apple can sustain this for 2-3 years easily and prise open this market.



    Over those 3 years, Apple can invest in original content creation, etc to fully crack open the market. And to ensure that this becomes profitable. Or without losing money - similar to everything else on iTunes.



    Would it be wise to do this? Wresting control of the TV market could really be a huge thing if successful. But to be successful in this, Apple needs to perfect a few things. Create the best possible interface for the end user, invest in massive data centers to support all this media streaming, sort out all the issues with iAd so that they can monetize this offering with ads of their own to offset some of the losses (or offer even cheaper plans to the subscriber). And most importantly, have enough money in the bank so no one thinks Apple is pulling a bluff on them!



    In some ways, Amazon is playing what should be Apple's script. Willing to lose money on devices, willing to offer all you can watch content deals at ridiculously low price per year, and investing in creating original content. What Amazon is doing with Kindle fire, Apple can do with the Apple TV - without losing money on the device, with a much higher monthly subscription price than Amazon is asking for, better content coverage, etc.



    Your share buyback idea is fine, but I'd pass on Apple getting involved in the cable business.



    If Apple can combine the TV + stereo + WIFI, thus creating a killer home entertainment center with wireless speakers throughout the home, sign me up.



    I hope Apple stays focused and doesn't take their cash hoard and go into money losing businesses. I'm just not a fan of Amazon's business model.
  • macarenamacarena Posts: 316member
    Quote:
    Originally Posted by syracuse View Post


    Your share buyback idea is fine, but I'd pass on Apple getting involved in the cable business.



    If Apple can combine the TV + stereo + WIFI, thus creating a killer home entertainment center with wireless speakers throughout the home, sign me up.



    I hope Apple stays focused and doesn't take their cash hoard and go into money losing businesses. I'm just not a fan of Amazon's business model.



    Exactly - at $79.99 for Amazon Prime it is obviously a lousy business model. Even cheaper than NetFlix. But at $29.99 per month? If Apple offered all you can consume TV, including live news and sport, integrated with a Giant cloud DVR that records everything for you, so you don't have to. What about such a model?



    Better get used to the idea bro - Apple is going to enter the TV business someday!
  • backtomacbacktomac Posts: 4,579member
    Quote:
    Originally Posted by macarena View Post


    Outside of a share buy back, the next best option for Apple is to use some of this cash to prise open a market that otherwise would be impossible to play in.



    For instance, take the US Cable business. Entrenched players like Comcast and content owners are unlikely to allow Apple to offer a subscription model or competitive ala carte pricing of channels.



    While they will be forced to play with Apple for antitrust reasons, they are not obliged to offer Apple the terms it needs. In such a scenario, Apple could probably attempt a power play - pay the content owners what they want, while offering customers what it wants to offer.



    Maybe they will lose about $20-$30 per month per subscriber doing this. Say $300 a year. If they can sign up 10 million US households into this model, that would be $3 billion a year.



    Now would you rather Apple paid out 3 Billion in an inefficient dividend, or spent that $3 billion to prise open cable TV market? Apple is probably the ONLY company that can pull this off. Even if it costs $10B a year, Apple can sustain this for 2-3 years easily and prise open this market.



    Over those 3 years, Apple can invest in original content creation, etc to fully crack open the market. And to ensure that this becomes profitable. Or without losing money - similar to everything else on iTunes.



    Would it be wise to do this? Wresting control of the TV market could really be a huge thing if successful. But to be successful in this, Apple needs to perfect a few things. Create the best possible interface for the end user, invest in massive data centers to support all this media streaming, sort out all the issues with iAd so that they can monetize this offering with ads of their own to offset some of the losses (or offer even cheaper plans to the subscriber). And most importantly, have enough money in the bank so no one thinks Apple is pulling a bluff on them!



    In some ways, Amazon is playing what should be Apple's script. Willing to lose money on devices, willing to offer all you can watch content deals at ridiculously low price per year, and investing in creating original content. What Amazon is doing with Kindle fire, Apple can do with the Apple TV - without losing money on the device, with a much higher monthly subscription price than Amazon is asking for, better content coverage, etc.



    This is why investors want a dividend. So Apple doesn't pull a Microft and invest billions of dollars in businesses that loose money for years. Does x-box and bing ring a bell?
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by backtomac View Post


    This is why investors want a dividend. So Apple doesn't pull a Microft and invest billions of dollars in businesses that loose money for years. Does x-box and bing ring a bell?



    Ding ding ding.



    No wait, Apple should become a bank! Or a mobile network operator! Why make $2 revenue on a dollar input when you can make $1.03 on a dollar input?
  • cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by macarena View Post


    Exactly - at $79.99 for Amazon Prime it is obviously a lousy business model. Even cheaper than NetFlix. But at $29.99 per month? If Apple offered all you can consume TV, including live news and sport, integrated with a Giant cloud DVR that records everything for you, so you don't have to. What about such a model?



    Better get used to the idea bro - Apple is going to enter the TV business someday!



    They may enter the TV business, but Apple is too smart to enter such a money losing enterprise as you're suggesting. The TV business doesn't mean the cable or content business. Not a lot of money to be made there, and LOTS of costs. Completely opposite Apple's current (and you would probably agree, successful) business model. Not going to happen bro.
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