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Dividend seen bringing $4B additional investment dollars to Apple

post #1 of 87
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Though Apple has long resisted paying its shareholders a dividend, one new analysis suggests the company could gain an additional $4 billion in investments if it were to do so.

Analyst Brian Marshall with International Strategy & Investment Group said his firm's surveys have indicated most investors do not believe Apple will initiate a dividend policy in 2012. However, he believes now that Tim Cook is in charge of Apple, the CEO will make an effort to optimize his company's capital structure and will, in fact, pay out a dividend.

He believes that Apple could "easily" implement a dividend yield of 250 base points, amounting to about $2.40 per quarter. In Marshall's view, a dividend payout would reduce Apple's free cash flow by between 20 percent and 25 percent.

But he also estimates that a dividend yield would bring in more than $4 billion in incremental investments, which is why Marshall believes Cook will decide to change course for Apple.

Calls for a dividend from Apple are not new. In fact, in September, investment firm Morgan Stanley recommended that the iPhone maker use its massive cash hoard for either dividend payouts or share buybacks.

In October of 2010, Apple co-founder Steve Jobs appeared on his company's quarterly conference call and discussed what he might do with his company's cash pile. When asked by one analyst if he would return some of the money to investors in the form of a dividend, Jobs dismissed that possibility.

"We strongly believe one or more strategic opportunities will come along we're in a unique position to take advantage of," the late Apple CEO said in 2010. "We don't let the cash burn a hole in the pocket or make stupid acquisitions. We'd like to continue to keep our powder dry because we think there are one or more strategic opportunities in the future."



Apple has used its cash to its advantage for strategic investments, such as earlier this year when it paid $2.6 billion for its share of patents sold off by Nortel. Last year Apple also paid about $200 million to buy Siri, and the company's technology now powers the Siri voice recognition feature in the iPhone 4S.

The company has also leveraged its deep pockets to gain an advantage over rivals in the supply chain. By offering up-front payments for components such as flash memory, Apple has been able to block out the competition and secure its own inventory.

Those moves are made possible because Apple has more than $81.6 billion in cash, as of last quarter. With that cash, Apple has prepaid for NAND flash, displays, and other secret components, such as in a $3.9 billion deal the company revealed earlier this year.

Last month in its annual 10-K filing with the U.S. Securities and Exchange Commission, Apple officials revealed they expect their company to increase capital expenditures by 73 percent year over year in fiscal 2012. That would bring its projected expenses to $8 billion, compared with expenses of just $1.2 billion in 2009.
post #2 of 87
Can Apple pay dividends with the money that is "parked" overseas?
post #3 of 87
My guess is that Apple is going to own Sprint within the next few years.

Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.

I've not seen anybody else express this guess. Have any of you guys?
post #4 of 87
I have very mixed feelings on this subject. I'd love to get a dividend but I recognize the dangers of Apple going down this road and why Steve was against it. Perhaps there comes a point where Tim sees this as a benefit not a danger as the reserves are so high.
Been using Apple since Apple ][ - Long on AAPL so biased
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Been using Apple since Apple ][ - Long on AAPL so biased
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post #5 of 87
Quote:
Originally Posted by 801 View Post

Can Apple pay dividends with the money that is "parked" overseas?

No, it has to pay taxes on it first.
post #6 of 87
Quote:
Originally Posted by ConradJoe View Post

My guess is that Apple is going to own Sprint within the next few years.

Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.

I've not seen anybody else express this guess. Have any of you guys?

What would be the business model going forward if such an acquisition were ever to happen as you see it?
Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini, SE30, IIFx, Towers; G4 & G3.
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Been using Apple since Apple ][ - Long on AAPL so biased
nMac Pro 6 Core, MacBookPro i7, MacBookPro i5, iPhones 5 and 5s, iPad Air, 2013 Mac mini, SE30, IIFx, Towers; G4 & G3.
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post #7 of 87
This analysis is a joke.

Dividends have nothing -- repeat, nothing -- to do with free cash flow. Free cash flow is a firm's operating cash flow net of its investing cash flow, without consideration of any financing or payout effects.
post #8 of 87
Big deal.

Apple will grow $20 Billion with the build out of all it's 4S country offerings and lower tier Telco offers, never mind far greater than that when they do crack that TV market.
post #9 of 87
Quote:
Originally Posted by AppleInsider View Post

Though Apple has long resisted paying its shareholders a dividend, one new analysis suggests the company could gain an additional $4 billion in investments if it were to do so.

Could Apple use 4 billion more dollars? Yes
Does Apple NEED 4 billion more dollars? No
Does Apple need dividends to keep shareholders happy? No
Does Apple want to get money in short term? Yes
Does Apple want to lose money in the long term? No


so, they could give dividends, probably lose money in the long term, and it wouldn't benefit them...


Any real reasons to do this?

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PC means personal computer.  

i have processing issues, mostly trying to get my ideas into speech and text.

if i say something confusing please tell me!

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post #10 of 87
Even if another $4 billion is invested in Apple stock, the company doesn't get any of the money.
post #11 of 87
...mean to an individual shareholder?

The article speculates on "250 base points, or $2.40 per quarter"

Is that $2.40 per share? So, if I owned 100 shares of AAPL, would that mean I'd receive $240 per quarter, or $960 per year?
post #12 of 87
Quote:
Originally Posted by anantksundaram View Post

This analyst is a joke.

Dividends have nothing -- repeat, nothing -- to do with free cash flow. Free cash flow is a firm's operating cash flow net of its investing cash flow, without consideration of any financing or payout effects.

semantics aside, he's referring to total cash flow, which includes financing activities.
post #13 of 87
Quote:
Originally Posted by 801 View Post

Can Apple pay dividends with the money that is "parked" overseas?

Depends. If the shareholder is in Germany and Apple has cash in Germany, they can pay the dividend without paying U.S. taxes. They will, of course, have to pay German taxes on the German income (but they have to do that whether they pay dividends or not) and the taxpayer pays taxes on the dividend (assuming that there are taxes on dividends in Germany).

Quote:
Originally Posted by chabig View Post

Even if another $4 billion is invested in Apple stock, the company doesn't get any of the money.

You beat me to it. This article was obviously written by someone who doesn't have a clue what they're talking about and the analyst should be put into chains on Wall Street so all the real experts can laugh at him.

Adding value to Apple stock doesn't do a darned thing for Apple (at least, not directly). Share price increases slightly, but the people who benefit are the ones who already own the stock. The money doesn't go to Apple. (Of course, Apple might benefit indirectly by having happier shareholders, but that's not particularly important).

It would, of course, benefit Apple if they were planning to issue any more shares to raise capital, but that doesn't appear the least bit likely.

Furthermore, the math is ridiculous. They want Apple to spend $2 B per quarter on dividends in order to get a one time gain of $4 B in share price. If Apple were worried about propping up share prices, they would get an even greater benefit by simply buying back shares. One year's worth of dividends would allow them to buy back $8 B in shares - which would probably increase average share price more than the $4 B one-time gain the 'expert' is claiming.
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Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #14 of 87
Quote:
Originally Posted by BlueDjinn View Post

...mean to an individual shareholder?

The article speculates on "250 base points, or $2.40 per quarter"

Is that $2.40 per share? So, if I owned 100 shares of AAPL, would that mean I'd receive $240 per quarter, or $960 per year?

Correct.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #15 of 87
Quote:
Originally Posted by AppleStud View Post

semantics aside, he's referring to total cash flow, which includes financing activities.

What is "total cash flow"!?
post #16 of 87
Apple doesn't give a damn about directly putting money into investor's pockets. Why should it? The company is more than sound as it is. The company designs consumer/tech goods and it's not some Wall Street investment firm. Apple needs to take every spare penny and invest it into building manufacturing facilities and advance purchasing of component supplies from multiple sources in order to build its economies of scale so large that not one competitor can touch it in price to quality value. If Apple continues on its present path for the next few years, it may be able to crush out nearly all of its current competitors. When it comes to consumer/tech companies it needs to be the biggest and strongest of the bunch and that's all that matters.

Apple stock is completely manipulated by hedge funds so regardless of what Apple does the share price will never get much higher than it is now. Apple stock continues to sink in a climbing market despite selling products as fast as it can build them and doing far better than rival companies whose share prices are climbing. That alone indicates that there are criminals running Wall Street and Apple has no direct control over that.
post #17 of 87
I disagree to have dividend and stock price split as well. Keep the reserve to buy out Gxxgle and SamSxxg.
post #18 of 87
Quote:
Originally Posted by nicolbolas View Post

Could Apple use 4 billion more dollars? Yes
Does Apple NEED 4 billion more dollars? No
Does Apple need dividends to keep shareholders happy? No
Does Apple want to get money in short term? Yes
Does Apple want to lose money in the long term? No


so, they could give dividends, probably lose money in the long term, and it wouldn't benefit them...


Any real reasons to do this?

Aptly terse NO!
post #19 of 87
I forget, how many $350 billion dollar companies has Mr. Marshall operated?

Oh, yeah, none. Maybe he should stick to what he knows and leave Apple to manage their own finances? They seem to be doing a damned good job at it...

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    AT&T believes their LTE coverage is adequate

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post #20 of 87
Like Apple needs more money. It would be a total waste of time for them to do something like this. I can't imagine its CFO suggesting this.
post #21 of 87
The analysis forgets one thing. Paying a dividend is always a choice of the board of directors and although Tim Cook now sits there, everyone else (save Steve Jobs) is still there. Unless the other directors change their mind from the status quo, the situation will not change.
post #22 of 87
These are the investment bankers and hedge funds, the great market and stock manipulators, beating this drum. Ignore them Apple and keep doing what you are doing. The drum beaters for a dividend are the same greedy bastards that created the current economic climate globally. Cash is king!
post #23 of 87
Instead of waiting for Apple to pay a dividend I've started selling covered calls against the shares I own.

For example, as of today you could sell a December covered call against 100 of your shares for $194 at a strike price of $420. What does that mean?

You get paid $194 today.
If aapl is under $420 at expiration on December 16 nothing else happens.
If aapl is over $420 at expiration on December 16 you have to sell your shares for $420 each. Even if aapl is trading at $450 on the open market. But you still get the $194 and whatever value your shares have appreciated up to $420.

So essentially you put a cap on the price your shares can get to.

$194 isn't much of a return on $38,000 worth of stock. But it adds up to about 6% a year. If you're long term bullish on aapl and your shares get called away because the price went over $420 you can then reverse the process. Start selling puts at a price you're willing to get back in. If the stock falls to the price you get to buy your shares at that price. Either way you collect the premium.

At this point Apple is still growing at a remarkable rate. There's little precedent for it and it partially explains the low p/e aapl has now - WS doesn't understand it. The other part of the explanation: The way aapl has been swinging the last few years is extremely attractive to options traders.

As long as aapl keeps growing like it has I'm ok with no dividend. Covered calls aren't perfect but they do provide a way to generate income with reasonable risk.
post #24 of 87
Quote:
Originally Posted by BlueDjinn View Post

...mean to an individual shareholder?

The article speculates on "250 base points, or $2.40 per quarter"

Is that $2.40 per share? So, if I owned 100 shares of AAPL, would that mean I'd receive $240 per quarter, or $960 per year?

Yeah, that should read "250 basis points". That's banker talk for 250 one-hundreths of a percent, or 2.50% yield. Whatever the value of your current holdings, multiply it by 2.5%, and that would be your annual dividend received.

That said, I have yet to understand what the advantage to Apple would be of this move... Companies pay dividends when their stock price is no longer growing very fast, and they still want to "reward" their shareholders... That isn't the case... at all. If you own a big chunk of AAPL, and you want a dividend, sell 2.5% of your shares every year. The value of your holdings will still go up, you'll have your dividend, and you can STFU about how Apple is screwing their shareholders.
post #25 of 87
About once a week, someone who has never run a corporation but thinks they know better than Apple comes out and says they know how to run Apple better than Apple. Why aren't corporations chasing these analysts down and begging them to take over?
post #26 of 87
Quote:
Originally Posted by ConradJoe View Post

My guess is that Apple is going to own Sprint within the next few years.

Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.

I've not seen anybody else express this guess. Have any of you guys?

I've seen this proposal countless times in many tech forums, but not in the press or by analysts.

Why? Because it makes no sense. Apple considers mobile operators to be dumb pipes. Cellular companies are like utilities and don't bring any value add to the equation.

Apple's investments are strategic and affect a large portion of their products. The acquisitions of Intrinsity and P.A. Semi affect VLSI design for their custom ARM chips which goes into a huge number of units. Even the beta Siri service will eventually branch out to many more languages and markets.

The acquisition of the third-ranked cellular company in America doesn't not really improve the product, especially because over half of Apple iPhones are sold internationally. Sprint is a small slice of the American slice of Apple's pie, and the American portion is growing smaller over time.

Moreover, Sprint is a loser. They don't turn a profit. They have $18 billion in debt. Not a very good investment. The only people who would be interested in acquiring Sprint would be another telecom, either to get a foothold in a new market or to consolidate with their own. The fragmented nature of the US cellular market doesn't spurn foreign investment. Heck, even T-Mobile USA parent Deutsche Telekom doesn't want to invest any more in their loser US subsidiary.

Rather than buy Sprint, Apple would be far better off spending a billion dollars building retail stores in China.
post #27 of 87
If Apple made a commitment to pay out ALL its cash in dividends, the loss would be a mere $40 billion in personal income taxes on the investor side. The governmetn would be so happy. Oh, wait. That would be REALLY stupid.
post #28 of 87
Quote:
Originally Posted by digitalclips View Post

What would be the business model going forward if such an acquisition were ever to happen as you see it?

Increased vertical integration. More retail. The ability to further integrate the hardware, software and network.

All just a WAG, however. My only real evidence is Apple making a loan to Sprint that dwarfs Sprints annual income, combined with reports that it may endanger Sprint's survival.

Why would Apple enter into such an agreement?
post #29 of 87
Yes, getting taxed twice is indeed stupid. Once for bring the money back into the States, another time in capital gains.

But beyond that, Apple should be able to get a better rate of return from their own strategic investments rather than returning it to the shareholders, in part or in full. If you want regular dividend payouts, you wouldn't have invested in AAPL anyhow. You would have bought T, FTR, WIN, etc.
post #30 of 87
Quote:
Originally Posted by mdriftmeyer View Post

Big deal.

Apple will grow $20 Billion with the build out of all it's 4S country offerings and lower tier Telco offers, never mind far greater than that when they do crack that TV market.

totally right. absolute drop in the bucket.
post #31 of 87
I do not want dividends. I don't like the fact that Apple is earning zilch on its cash pile, but I don't see how I could do any better if they returned the cash to me as a stockholder.

I'd much rather apple see Apple invest in their business. They have less than 10 retail stores in China, they should probably have 1,000. They need to build data centers around the globe to support iCloud/Siri rollouts and upgrades. And they could always buy more patents (no doubt RIM will be auctioning off assets in a few years -- their patents are probably worth several billion dollars).

heck, I'd rather they build factories to make their own A# chips before giving cash back as dividends.

If they absolutely must throw money at shareholders, I'd rather they do stock buybacks, and then only to smooth out the share price (buy on dips) and to prevent dilution from employee stock options.
post #32 of 87
Quote:
Originally Posted by FreeRange View Post

These are the investment bankers and hedge funds, the great market and stock manipulators, beating this drum.

The investment bankers and hedge funds (along with pension funds and mutual funds and others) own Apple. It belongs to them. Or at least, the vast majority of Apple belongs to them.

They will elect directors who act in the best interests of the investment banks and the hedge funds and the pension funds and the insurance companies and the mutual funds. Because creating value for these entities is Apple's chief goal in this world.

Sorry for the reality lesson. Someone's got to do it.
post #33 of 87
Have I got this right? This article is trying to convince us that Apple would be better off if someone were to give them 4 billion to play with, when they already have 80 billion in the bank they can call upon? And of course to get that 4 they will have to take a chunk of the 80 and pay it out.
post #34 of 87
The day Apple start paying dividends is the day I will sell all my AAPL.
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post #35 of 87
Quote:
Originally Posted by cvaldes1831 View Post

I've seen this proposal countless times in many tech forums, but not in the press or by analysts.

Why? Because it makes no sense. Apple considers mobile operators to be dumb pipes. Cellular companies are like utilities and don't bring any value add to the equation.

Apple's investments are strategic and affect a large portion of their products. The acquisitions of Intrinsity and P.A. Semi affect VLSI design for their custom ARM chips which goes into a huge number of units. Even the beta Siri service will eventually branch out to many more languages and markets.

The acquisition of the third-ranked cellular company in America doesn't not really improve the product, especially because over half of Apple iPhones are sold internationally. Sprint is a small slice of the American slice of Apple's pie, and the American portion is growing smaller over time.

Moreover, Sprint is a loser. They don't turn a profit. They have $18 billion in debt. Not a very good investment. The only people who would be interested in acquiring Sprint would be another telecom, either to get a foothold in a new market or to consolidate with their own. The fragmented nature of the US cellular market doesn't spurn foreign investment. Heck, even T-Mobile USA parent Deutsche Telekom doesn't want to invest any more in their loser US subsidiary.

Rather than buy Sprint, Apple would be far better off spending a billion dollars building retail stores in China.

Thanks.
post #36 of 87
Quote:
Originally Posted by ConradJoe View Post

My guess is that Apple is going to own Sprint within the next few years.

Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.

I've not seen anybody else express this guess. Have any of you guys?

Deleted by author. This dumb idea led to my making a more sarcastic comment than you deserve. But please, read up on Apple and try to get a better understanding of what it does and does not do.

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post #37 of 87
The calculation of $4 Billion in additional "investment" in AAPL by mutual funds and ETFs that focus on dividend paying stocks grossly underestimates the number and scope of funds that would be attracted to AAPL by the initiation of a dividend. Many, many funds will only invest in dividend paying stocks. A much smaller universe invest in high dividend payers, and these were the funds highlighted by the author. Traditional "Dividend oriented funds" concentrate in the consumer staple and utility stocks, which are low beta and slow but steady growers. "Growth & Value" type funds predominate the equity mutual fund and ETF universe, and these funds need stocks with lower PEG ratios.

Prospective purchases by these funds are from the existing float, and none of this money flows to Apple corporate. Instead, the dividend provides a stronger underpinning to the stock's market value, reducing volatility and susceptibility to short selling. Thus, while the company's coffers are not directly enriched by the buy-in of funds, the company and its employees benefit from the implied higher valuation.
post #38 of 87
Quote:
Originally Posted by walshbj View Post

Instead of waiting for Apple to pay a dividend I've started selling covered calls against the shares I own.


As long as aapl keeps growing like it has I'm ok with no dividend. Covered calls aren't perfect but they do provide a way to generate income with reasonable risk.

Selling covered calls is a good way to lose your good stocks and keep your bad ones.
post #39 of 87
What I want to see under Cook....leverage the brand and go for their throats.

1) Launch a $500 notebook & desktop, pocket around $100 per sku. Stop ignoring this market.

2) Add phone models to the lineup or license I0S to select makers, pocket about $50 per sku. Allow the partner to use the A5 or whatever to help drive down costs. Position the phones under your flagship, using old models for you "no-cost" option isn't a great strategy. Make the industry work for you not against you.

3) Expand Apple TV to include apps and Siri, put a mic in the simple remote. There are already apps to control cable, satellite receivers.

Once you've thrown down a challenge, you must play offense and defense....defense alone will not do it.
post #40 of 87
Apple should buy back shares.
With todays idiotic value of Apple, the stock is dirt cheap.

If Apple continues to grow like they have for the last 10 years, Apple will have enough cash 2014 to buy every single share of AAPL.

Delist the company and focus on making the best products in the world. That is what Steve wants.
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