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

post #1 of 138
Thread Starter 
Availability of Apple shares could become an issue, boosting the company's price-to-earnings multiple later this year, if the company does decide to pay out a dividend to investors.

Analyst Mark Moskowitz with J.P. Morgan said in a note to investors on Friday that he expects that Apple will indeed pay a dividend in the near future. Given the company's current $100 billion in cash, he even thinks this could be a generous dividend of between 3 and 4 percent.

But he believes the creation of a dividend could create a "scarcity issue" for AAPL shares, as the iPhone maker's stock is currently under-owned by institutions. Even though Apple is the largest stock in the Russell 1000, 40 percent of mutual funds indexed to the Russell 1000 do not have Apple as a top 10 holding.

In addition, Moskowitz noted that 77 percent of Apple's shares are held institutionally. That's lower than the average among companies in the S&P 500, and it's also lower than the average technology sector holding.

"In other words, Apple is substantially under-owned by major investment funds, particularly those focused on income, i.e., dividend," he wrote. "If and when Apple were to announce a dividend, we expect the scarcity issue to result as investment funds move to build meaningful position."

A scarcity of AAPL shares could push the company's valuation multiples in the range of 13 to 15 times forward price-to-earnings ratio. That would address what he said have been the company's recently depressed valuation multiple of about 10 to 12 times.

A higher price-to-earnings multiple with Apple's continued earnings growth could lead to a "major appreciation trajectory" for the value of Apple stock, Moskowitz believes.


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


The comments come less than a day after investors pressed Apple at its annual shareholder meeting on issuing a dividend. Calls for a cash dividend have increased since Apple's cash hoard has swelled to $100 billion.

Apple Chief Executive Tim Cook told investors that the company continues to think "very deeply" about what to do with its cash. The company has continued to make strategic investments to bolster its supply chain and also enhance its current product offerings, as it did with the $50 million purchase of App Store search engine Chomp, revealed on Thursday.

"My message there is that the board and the management are thinking about this very deeply... and we will do what we think is in the best interest of shareholders," Cook said.

[ View article on AppleInsider ]
post #2 of 138
So Apple has so much money it can't make more money of out it so it will give it back to the shareholders. Looks like it's time to sell.
post #3 of 138
It's been a decade since Apple needed cash in the bank to finance operations. Money coming in is sufficient.

What Apple should do is a one-time special dividend using 50 billion. That will amount to about $5 per share, and if they do it soon, the tax hit on shareholders will be small. That will leave them 50B in the bank which grows by around 10 per quarter, and in another year they can do it again if the tax environment remains reasonable.
post #4 of 138
Quote:
Originally Posted by elmsley View Post

So Apple has so much money it can't make more money of out it so it will give it back to the shareholders. Looks like it's time to sell.

That makes no sense. Apple will make close to $50 EPS or over $50 billion in profit this year. They are also growing earnings over 100% year over year. Apple has FAR more money than they need and the cash is generated rapidly. The point of a publicly traded business is to return value to its owners, the shareholders. This is a good thing. It points to apples strength not weakness.
post #5 of 138
Quote:
Originally Posted by cameronj View Post

It's been a decade since Apple needed cash in the bank to finance operations. Money coming in is sufficient.

What Apple should do is a one-time special dividend using 50 billion. That will amount to about $5 per share, and if they do it soon, the tax hit on shareholders will be small. That will leave them 50B in the bank which grows by around 10 per quarter, and in another year they can do it again if the tax environment remains reasonable.

That would be a huge mistake has it doesnt address at all the problem of allowing more funds to buy Apple. Not to mention that most of the cash is not available since its off shore.

And 50 billions means 50$ per share, not 5$.
post #6 of 138
Apple have explicitly said they will not be issuing a dividend at this time, yet some analysts persist with talk of dividends. Do they think that is all Apple can do with the money? It just goes to show what a limited imagination so-called analyst, Mark Moskowitz, has.
post #7 of 138
Quote:
Originally Posted by elmsley View Post

So Apple has so much money it can't make more money of out it so it will give it back to the shareholders. Looks like it's time to sell.

... yes please sell.
post #8 of 138
Quote:
Originally Posted by elmsley View Post

So Apple has so much money it can't make more money of out it so it will give it back to the shareholders. Looks like it's time to sell.

Does that really make sense? I would guess that Apple doesn't have a lack of investment opportunity, so it seems that it has been a strategic decision thus far to accumulate so much cash. That doesn't mean that there aren't viable investment opportunities for Apple, just that building a war chest without the risk of loss may have been more important.

If you really felt that way, then the time to sell would have been when Apple first began accumulating such a massive cash hoard, as the share price has certainly continued to climb the entire time they've been accumulating it. What makes you believe that growth will stop at this point?

Also, how much of Apple's cash is a result of direct profit, and how much a result of investment from profit? It could be that a significant percentage of the $100 billion is actually the result investment profit.
post #9 of 138
Quote:
Originally Posted by herbapou View Post

That would be a huge mistake has it doesnt address at all the problem of allowing more funds to buy Apple. Not to mention that most of the cash is not available since its off shore.

And 50 billions means 50$ per share, not 5$.

The cash IS available, just not without a significant tax hit.
post #10 of 138
Quote:
Originally Posted by EmperorsNewClothes View Post

Apple have explicitly said they will not be issuing a dividend at this time, yet some analysts persist with talk of dividends. Do they think that is all Apple can do with the money? It just goes to show what a limited imagination so-called analyst, Mark Moskowitz, has.

They hint they may use preferred shares for a dividend. And "at this time" meant the shareholder meeting, not forever...

I personnally would prefer a regular dividend on the common shares.
post #11 of 138
Quote:
Originally Posted by cameronj View Post

It's been a decade since Apple needed cash in the bank to finance operations. Money coming in is sufficient.

What Apple should do is a one-time special dividend using 50 billion. That will amount to about $5 per share, and if they do it soon, the tax hit on shareholders will be small. That will leave them 50B in the bank which grows by around 10 per quarter, and in another year they can do it again if the tax environment remains reasonable.

Thank you for not running Apple's finances. I'll take massive increases in share prices over paltry dividends that then impede the company's growth by reducing the war chest.

And dividends get taxed at income levels rather than capital gains rates.
post #12 of 138
Quote:
Originally Posted by herbapou View Post

They hint they may use preferred shares for a dividend. And "at this time" meant the shareholder meeting, not forever...

I personnally would prefer a regular dividend on the common shares.

Well, 'duh' since most of us don't own preferred shares.
post #13 of 138
Quote:
Originally Posted by parksgm View Post

The cash IS available, just not without a significant tax hit.

which basictly means they wont used it for a dividend. They will conttinu to use this cash for operations.

I dont know if it was mention on the Macbook trend, but Apple used its cash to get access to large volume of the ivy bridge CPU'S before everyone else. The new MB are about to release while the CPU's wont be available for other companies before june.

Now thats a good use of the cash. Same goes for having pre-paid Sharp for the ipad 3 screens.
post #14 of 138
Quote:
Originally Posted by GQB View Post

Well, 'duh' since most of us don't own preferred shares.

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.
post #15 of 138
To announce they'll give a dividend they'll need to take into account the Apple news cycle. To have announced yesterday would have cast shadows over the pending iPad announcement.

I predict they'll announce in May/June.

It'll be smallish, I believe. 1-2%

Moving the needle in the future will require huge investment. I think they should build up to 250 Billion before settling down and giving a larger percentage.
post #16 of 138
It's amazing how many people are trying to get Apple's cash. The stockholders want dividends and their competitors are suing.
post #17 of 138
Quote:
Originally Posted by cameronj View Post

It's been a decade since Apple needed cash in the bank to finance operations. Money coming in is sufficient.

What Apple should do is a one-time special dividend using 50 billion. That will amount to about $5 per share, and if they do it soon, the tax hit on shareholders will be small. That will leave them 50B in the bank which grows by around 10 per quarter, and in another year they can do it again if the tax environment remains reasonable.

First, $50 B would be $50 per share.

Second, that would result in an immediate drop of around $50 per share in value (look up my post in the other thread where I provided evidence that this would happen based on other companies and mutual funds which have offered large dividends).

Third, there would be a large corporate income tax hit in bringing the money back to the U.S. That would probably cause the stock to drop by MORE than the value of the dividend.

Fourth, there would be a large tax hit to the dividend recipient since dividends are taxable income. The result is that I would receive less money than the drop in the value of the stock.

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

Overall, it's a crazy idea. If they really want to use the money to shore up stock prices, a stock buyback makes infinitely more sense.
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"I'm way over my head when it comes to technical issues like this"
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post #18 of 138
Apple says no dividend at this time; analyst says dividend coming. I very suspicious of this guy.
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post #19 of 138
AAPL is approaching $500b Market Cap, and has $100b in cash. Sooner or later it's going to become a cash drag, although maybe not immediately right now. Look at Buffett, he's asking you to help him find things to buy because he's running out of ideas. Anyhow, how can we all be trusting that this isn't another bubble all directed into a single stock? A lot of people buy this thing because they believe it's their saving grace without knowing the fundamentals.

GOOG is big too, yet all those new ideas are still not generating them enough to deem them truly useful compared to good ol' bread and butter Search.
post #20 of 138
Quote:
Originally Posted by jragosta View Post

First, $50 B would be $50 per share.

Second, that would result in an immediate drop of around $50 per share in value (look up my post in the other thread where I provided evidence that this would happen based on other companies and mutual funds which have offered large dividends).

Third, there would be a large corporate income tax hit in bringing the money back to the U.S. That would probably cause the stock to drop by MORE than the value of the dividend.

Fourth, there would be a large tax hit to the dividend recipient since dividends are taxable income. The result is that I would receive less money than the drop in the value of the stock.

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

Overall, it's a crazy idea. If they really want to use the money to shore up stock prices, a stock buyback makes infinitely more sense.

You win this thread.

And please, tell me more about a stock buyback.
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post #21 of 138
Quote:
Originally Posted by Shogun View Post

Moving the needle in the future will require huge investment. I think they should build up to 250 Billion before settling down and giving a larger percentage.

If you allow them to do that it may backfire in you're face as the temptation to go private will rise.
post #22 of 138
Quote:
Originally Posted by Shogun View Post

Moving the needle in the future will require huge investment. I think they should build up to 250 Billion before settling down and giving a larger percentage.

Can you give a little background on why you think huge investments will be required? What company besides Apple could amass that kind of cash stockpile even if given 10 years to do it? So only Apple will ever be able to move the needle because they're the only ones that could have such a war chest? You want Apple to have more in cash than the entire market capitalization of all but a couple of the biggest public companies in the world. To me there doesn't seem to be any rational argument to support that theory. I would be glad to hear one.
post #23 of 138
Quote:
Originally Posted by jragosta View Post

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

Overall, it's a crazy idea. If they really want to use the money to shore up stock prices, a stock buyback makes infinitely more sense.

Law of large numbers is the problem. I think they should do both, a regular dividend on the common share to allow more funds to buy Apple and buybacks to artificially rise the stock prices. I dont like buybacks but since Apple has so much $ its not a big issue if they keep it under control.
post #24 of 138
I'll restate an idea I suggested from another thread:

Instead of a dividend, Apple should use this money to start a bank.

Seem crazy? Here's why I think it makes sense:

1. I hate my bank and every bank I've ever had. The website sucks and I fundamentally don't trust them. Who doesn't agree with that? Seems like a market ripe for disruption.

2. Banking isn't as far afield of Apple's business as it seems. On the consumer side, there's a massive number of financial transactions that are processed through Apple's various stores (online, retail, music, and apps). Instead of paying charges to credit card companies, Apple could grab those charges for itself. On the corporate side, Apple already pushes a fair bit of money into the supply chain -- why not start lending money to their suppliers? And of course banking is becoming increasingly electronic -- that ties in with iCloud and it ties in with using iDevices as a means of payment.

3. Obviously Apple has the cash and brand power to start a bank.

As usual, start it in the US, then expand.
post #25 of 138
Quote:
Originally Posted by jragosta View Post

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

You're 5th point doesn't seem like a rational argument to me.

Wouldn't it make much more sense to compare the price of any of the mentioned stocks against themselves from before they instituted a dividend and then afterward (maybe trailing and following 6 months/1 year)? Then you can see what offering a dividend did to that particular stock. If you do a broad enough survey you should be able to see a reliable pattern. Comparing those stocks relative to Apple is completely illogical when deciding if beginning to issue a dividend is beneficial for Apple.

It's possible that a company's stock price doesn't generally benefit from beginning to issue a dividend, however my guess would be that it does. Otherwise there would be no incentive for companies to offer them.
post #26 of 138
Quote:
Originally Posted by Blastdoor View Post

I'll restate an idea I suggested from another thread:

Instead of a dividend, Apple should use this money to start a bank.

Seem crazy? Here's why I think it makes sense:

1. I hate my bank and every bank I've ever had. The website sucks and I fundamentally don't trust them. Who doesn't agree with that? Seems like a market ripe for disruption.

2. Banking isn't as far afield of Apple's business as it seems. On the consumer side, there's a massive number of financial transactions that are processed through Apple's various stores (online, retail, music, and apps). Instead of paying charges to credit card companies, Apple could grab those charges for itself. On the corporate side, Apple already pushes a fair bit of money into the supply chain -- why not start lending money to their suppliers? And of course banking is becoming increasingly electronic -- that ties in with iCloud and it ties in with using iDevices as a means of payment.

3. Obviously Apple has the cash and brand power to start a bank.

As usual, start it in the US, then expand.

I've floated that idea before. iPhone + NFC + iTunes Store + Apple Bank would be a powerful force. Simplified in the US. An optional debit card. Reward points that translate into iTS credit.

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post #27 of 138
This incredibly dumb analysis gets trotted out as financial news!?

C'mon, AI, you don't have to report things just because some random 'analyst' spouts stuff.
post #28 of 138
Quote:
Originally Posted by elmsley View Post

AAPL is approaching $500b Market Cap, and has $100b in cash. Sooner or later it's going to become a cash drag...

'Sooner or later'? With 20% of market cap 10 months' worth of sales in cash? If there was going to be a 'cash drag' it's already there. Yet the stock is doing fine, thank you.
post #29 of 138
Quote:
Originally Posted by jragosta View Post

First, $50 B would be $50 per share.

Second, that would result in an immediate drop of around $50 per share in value (look up my post in the other thread where I provided evidence that this would happen based on other companies and mutual funds which have offered large dividends).

Third, there would be a large corporate income tax hit in bringing the money back to the U.S. That would probably cause the stock to drop by MORE than the value of the dividend.

Fourth, there would be a large tax hit to the dividend recipient since dividends are taxable income. The result is that I would receive less money than the drop in the value of the stock.

Fifth, the argument that a dividend would have a positive effect on the share price is nothing more than unfounded speculation. Compare Microsoft to Apple for the past 10 years. Microsoft offers a dividend, Apple does not. Or Dell. Or almost any other company. If an institutional investor is not happy with the returns that AAPL has generated over the past decade, a dividend won't change their mind.

Overall, it's a crazy idea. If they really want to use the money to shore up stock prices, a stock buyback makes infinitely more sense.

That just about says it all.

Now, this post should be the cut-and-pasted as the next Apple-related financial story on AI (jragosta, just add some bogus 'stock price forecast' and submit it to AI! )
post #30 of 138
I do not want or need dividends. It only subjects me to tax. I own APPL for my retirement, which is many years away. When I need to access the money, I can sell the stock and pay capital gains tax rates, so who needs a dividend? A stock buyback on the other hand, is fine. By reducing the number of outstanding shares while profit is still on a strong upward swing, it is the best way to maximize the value per share. Thankfully, Tim Cook and the board understand these things, as evidenced by Tim's remarks at the shareholder meeting.
post #31 of 138
Quote:
Originally Posted by Blastdoor View Post

I'll restate an idea I suggested from another thread:

Instead of a dividend, Apple should use this money to start a bank.

Seem crazy? Here's why I think it makes sense:

1. I hate my bank and every bank I've ever had. The website sucks and I fundamentally don't trust them. Who doesn't agree with that? Seems like a market ripe for disruption.

2. Banking isn't as far afield of Apple's business as it seems. On the consumer side, there's a massive number of financial transactions that are processed through Apple's various stores (online, retail, music, and apps). Instead of paying charges to credit card companies, Apple could grab those charges for itself. On the corporate side, Apple already pushes a fair bit of money into the supply chain -- why not start lending money to their suppliers? And of course banking is becoming increasingly electronic -- that ties in with iCloud and it ties in with using iDevices as a means of payment.

3. Obviously Apple has the cash and brand power to start a bank.

As usual, start it in the US, then expand.

Apple to reinvent the banking system? They reinvented so many things that's true and amazing! And with Tim Cook and his golden hands for everything with finances! Hmm... May not be the craziest Idea.
post #32 of 138
Quote:
Originally Posted by SolipsismX View Post

I've floated that idea before. iPhone + NFC + iTunes Store + Apple Bank would be a powerful force. Simplified in the US. An optional debit card. Reward points that translate into iTS credit.

But please let iBank be global. I trust Apple more than any of our swiss banks.
post #33 of 138
Quote:
Originally Posted by jr_b View Post

It's amazing how many people are trying to get Apple's cash. The stockholders want dividends and their competitors are suing.

It's called capitalism.
post #34 of 138
AAPL keeps going up by the dollar keeps going down. When I convert to € the share price hasn't made me any money during the previous $12 rise : (
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post #35 of 138
Quote:
Originally Posted by herbapou View Post

That would be a huge mistake has it doesnt address at all the problem of allowing more funds to buy Apple. Not to mention that most of the cash is not available since its off shore.

And 50 billions means 50$ per share, not 5$.

Agreed. As an AAPL shareholder I don't want that $50 per share, I really don't. Keep it in the pot for when times are hard, because at some point, times will get hard. I can't personally see any potential for negativity in 5 or 10 years or more, but it will happen.
post #36 of 138
Quote:
Originally Posted by herbapou View Post

Law of large numbers is the problem. I think they should do both, a regular dividend on the common share to allow more funds to buy Apple and buybacks to artificially rise the stock prices. I dont like buybacks but since Apple has so much $ its not a big issue if they keep it under control.

I agree with your thought process, a regular dividend + stock buyback would be positive for AAPL stock. And I agree with most of the professional stock analysts that believe a regular dividend payment would open AAPL up to an entirely new investor base.

The "law of large numbers" (LLN) is a theorem that describes the result of performing the same experiment a large number of times.(WIKI)

The Media constantly misuses LLN in relation to AAPL, its annoying. If you think the market cap of Apple is too large relative to their market share and don't see their ability to raise their market share, say that. BUT PLEASE don't use an incorrect Theorem. Probably not your fault since CNBC talking heads constantly misuse LLN.
post #37 of 138
Technically, about $70 billion are in long-term investments. The amount of "cash" and short-term investments has been mostly flat around $25 billion since Q4-08. It may be more correct to say that Apple's balance sheet resembles that of a profitable manufacturer of consumer electronics who also happens to operate a large investment fund. The formula worked for Porsche for many years. They were essentially a hedge fund that also made cars.

Maybe Apple could essentially create a venture capital fund within itself to fund start-ups and research. That would be more productive than a simple dividend or buyback.

That said, I think tax law and the election will play a big role in this decision. The special 15% tax rate on dividends is set to expire this year. If Obama is re-elected (which I say is about a 60% probability) then it is likely that the dividend tax rate will rise in 2013, which would give Apple an incentive to declare a special dividend in calendar 2012, if they do intend to do so (to give US shareholders the benefit of the lower rate).

Also, Obama's proposed budget calls for a minimum tax on overseas earnings. Apple has been calling for essentially the opposite - a tax "holiday" on repatriation of overseas earnings, similar to what the Bush administration did in the early 2000s. Depending on how the tax code ultimately shapes up, Apple's cash/investment management strategy is likely to adapt. It must be exciting times in Apple's treasury and tax departments right now.
post #38 of 138
Quote:
Originally Posted by cws View Post

I do not want or need dividends. It only subjects me to tax. I own APPL for my retirement, which is many years away. When I need to access the money, I can sell the stock and pay capital gains tax rates, so who needs a dividend? A stock buyback on the other hand, is fine. By reducing the number of outstanding shares while profit is still on a strong upward swing, it is the best way to maximize the value per share. Thankfully, Tim Cook and the board understand these things, as evidenced by Tim's remarks at the shareholder meeting.

Smartest kid in class.
A++
post #39 of 138
Quote:
Originally Posted by elmsley View Post

So Apple has so much money it can't make more money of out it so it will give it back to the shareholders. Looks like it's time to sell.

Don't you mean 'back to the customers'? You know, the ones that actually pay THE company, not pay FOR the company.
post #40 of 138
Quote:
Originally Posted by cws View Post

I do not want or need dividends. It only subjects me to tax. I own APPL for my retirement, which is many years away.

Then isn't it in a tax sheltered account like an IRA? If not, why?

Quote:
Originally Posted by cws View Post

A stock buyback on the other hand, is fine. By reducing the number of outstanding shares while profit is still on a strong upward swing, it is the best way to maximize the value per share.

Stock buybacks don't often transfer wealth to shareholders. Stocks can and do go down when companies buy back shares. Just ask HP. A dividend however is a direct transfer of company profits to shareholders. That's why a lot of people invest in stocks.
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