Dividend seen creating 'scarcity issue' for under-owned Apple stock - Page 3

Originally Posted by Dr Millmoss

This is just plain bizarre reasoning. Please think about what you are saying. If Apple ever had to fund operations out cash reserves, then this would mean the company is losing money. Would you seriously want to be an AAPL investor if they went from being one of the most profitable companies on the planet to losing money?

Originally Posted by jragosta

t as good as mine, but if you want to have it that way, look at Microsoft's growth rates before they started giving a dividend and after. They grew a rapid rates until they started the dividend and they've been flat (or down) since then.

Originally Posted by mstone

Apple doesn't seem well suited to the banking business. At least philosophically. Sure they have enough money to enter any business they choose, however, keep in mind that they have suggested one of the secrets to their current success can be attributed to keeping their product line lean. I don't remember how many products they said but it is astoundingly low for a fortune 100 company.

I think Apple entering the banking industry would flop just like Apple entering the social network industry did. They should concentrate on insanely great tech and leave banking to the bean counters.

Originally Posted by jragosta

They've confused cause and effect. Companies that are doing well pay more in dividends. And companies that are doing well tend to do well the next year, as well. Essentially, all their 'evidence' shows is that companies give more dividends during good economic times and tend not to give dividends when there are clouds on the horizon. There's nothing there that indicates that the dividends cause (or even contribute to) growth.

HOWEVER, my argument is (and has always been) that it's up to the Board and Management to decide when that time is right. No one on this forum or any of the idiot analysts who keep chiming in on the subject is in a position to dictate when Apple should do so. You buy AAPL if you're confident in the management's ability to make decisions like that. If you're not confident in their ability to make that decision, don't buy the stock.

Originally Posted by syracuse

Their is a large investor base of Mutual Funds that would LOVE to own AAPL but CAN'T. If AAPL pays a dividend those Mutual Funds will buy AAPL.

Its so basic and straight forward, its almost laughable.

Originally Posted by Realistic

The article indirectly mentions that with; ""In other words, Apple is substantially under-owned by major investment funds, particularly those focused on income, i.e., dividend," and I own shares in two such mutual funds.

Originally Posted by anantksundaram

There were approximately 7,600 mutual funds in the US as of 2010, of which a little over 5,000 were equity funds (including hybrid funds that invest in stocks and bonds). The data are from the Investment Company Institute.

The ones that cannot, by their charter, invest in non-dividend-paying companies such as AAPL (e.g., 'income' funds or balanced funds) constitute perhaps no more than 1,500 or so. In other words, there are PLENTY that can still invest in the company despite its not paying dividends.

Second, just an starting to pay dividends will make AAPL attractive to such funds, it will make AAPL less attractive to others, such as pure 'growth' funds. Thus, the net effect predicted on AAPL from such portfolio rebalancing is totally speculative, at best.

Third, and perhaps most important, the stock has been doing superbly even without this group of MFs investing in Apple. Apple need not bother with actions that can only be viewed as responding to a tail's attempt to wag the dog.

Originally Posted by jragosta

Stock buybacks are easy. Let's say that the market values the entire company at $500 B and there are 1 B shares. That means that each share is valued at $500.

Now, if Apple buys back 10% of its shares, there are only 900 M shares in circulation, but the market valuation doesn't change (the cash is replaced with something of equal value - the shares). So the share price would be about $555.

Originally Posted by cameronj

Sounds like you just took your opinion, slapped some made up numbers (unless you can tell me where that 1500 came from) and went from there as if you had proved something.

Originally Posted by cameronj

Secondly, the raw number is not important. What is important is the amount of money that is invested elsewhere as a result of the stupid policy of holding onto this much cash and doing zippy with it.

Originally Posted by anantksundaram

Perhaps you have some kind of comprehension deficiency: did you note that I gave you my source?

Originally Posted by backtomac

I remember Steve talking about focus and how that meant saying NO to ideas. Some that are even good ideas but that by saying NO to some ideas that allowed their focus to be sharpest on the best ideas.

This is a ridiculous idea for a tech company like Apple. Its beyond their core competency and I would sell Apple stock immediately if they announced such a stupid plan. I think others would as well.

Originally Posted by SolipsismX

I'm not suggesting that Apple follow in the footsteps of Bank of America, I'm suggesting they just continue doing what they've been doing for a decade with iTunes Store and now with their ability to pay for items with your iPhone at an Apple Store.. just with all other stores.

If they would no longer have to pay a percentage fee to MC and Visa per transaction they could pass some of that savings back to you in terms of free iTS merchandise which is just another win for them.

The only change they have to make is to add NFC (which is surely coming anyway) and have a way for direct deposit added to your account. No need to do home loans and other banking solutions.

Originally Posted by cameronj

Not to mention that getting into the banking business doesn't require $100B - the beauty of a bank is that customers GIVE you money to HOLD for them, you don't have to earn it by selling hardware first, and then loan it out. Some people just don't understand!

Originally Posted by Blastdoor

There's more to it than putting up a shingle that says "bank" and then having people deposit their savings. People don't just hand over their money to Fred's Bank.

True, $100B is not a necessary condition to start a bank. But, if you happen to have $100B that you'd like to do something with, loaning money to your customers (so they can buy your products) and loaning money to your suppliers (so they can make your products), isn't such a bad thing to do. And if you can cut out the middle man in making those loans (i.e. the banks), so much the better. And, if in creating this bank, you can increase the value of your entire ecosystem of products, even better still.

Originally Posted by cameronj

Actually you didn't. Your posted the source for the total number of funds, and then you said "perhaps 1500 require dividends"

What am I missing?

Usually when someone provides a source, there is a link involved.

Originally Posted by Blastdoor

Kind of like how cell phones were beyond their core competency as of 2006?

Originally Posted by anantksundaram

Ugh. Add laziness to your arrogance.

See: http://www.icifactbook.org/fb_data.html

Look at Table 5 for total number of equity funds in 2010 (4,585) and hybrid funds (478; these are firms that own a mix of stocks and bonds).

Of those 2,750 are 'capital appreciation funds' -- i.e., they invest in non-dividend-paying ('growth') stocks such as AAPL for their capital appreciation potential. (Table 6). There are 692 'total return' funds (total return = div yield + capital gains), and they are the ones that are most likely to require dividends. I counted all of them, plus all the hybrid funds as falling into that category, and that is ~1,200. So when I said "1,500" I was being extremely generous about the number of funds that may not buy AAPL because of their investing style limitations.

Originally Posted by CGJ

Don't you mean 'back to the customers'? You know, the ones that actually pay THE company, not pay FOR the company.

Originally Posted by cameronj

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.

Originally Posted by cameronj

Not to mention that getting into the banking business doesn't require $100B - the beauty of a bank is that customers GIVE you money to HOLD for them, you don't have to earn it by selling hardware first, and then loan it out. Some people just don't understand!

Originally Posted by ksec

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.

Originally Posted by backtomac

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.

Originally Posted by bwik

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.

Originally Posted by herbapou

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.

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.

Originally Posted by sunilraman

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

Originally Posted by Technarchy

The mobile landscape is growing and becoming more competitive.

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

Originally Posted by sunilraman

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.

Originally Posted by Technarchy

The mobile landscape is growing and becoming more competitive.

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

Originally Posted by backtomac

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.

Originally Posted by macarena

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.

Originally Posted by syracuse

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.

Originally Posted by macarena

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.

Originally Posted by backtomac

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?