The AMD speculation was just that as far as I know. I'm opposed to them owning actual fabs, they should just design and contract with manufacturers, IMO.
As was the custom for conquering Roman warriors upon their return, I hope Steve has someone who whispers in his ear, "All glory is fleeting." As much as we all (well, most, anyway) would like to see this continue forever there will be a slowing down or stumble at some point. The haters will be out banging pots and pans, and screaming at the top of their lungs on that day. We need to be ready for their onslaught.
As was the custom for conquering Roman warriors upon their return, I hope Steve has someone who whispers in his ear, "All glory is fleeting." As much as we all (well, most, anyway) would like to see this continue forever there will be a slowing down or stumble at some point. The haters will be out banging pots and pans, and screaming at the top of their lungs on that day. We need to be ready for their onslaught.
As was the custom for conquering Roman warriors upon their return, I hope Steve has someone who whispers in his ear, "All glory is fleeting." As much as we all (well, most, anyway) would like to see this continue forever there will be a slowing down or stumble at some point. The haters will be out banging pots and pans, and screaming at the top of their lungs on that day. We need to be ready for their onslaught.
But for now...LET THE GOOD TIMES ROLL, BABY!
I expect several more years of good times. Then, we'll see. But so far, every time it's said that there isn't another area in which they can excel, they prove them wrong.
Honestly, the iPad early success was a shock for Apple as well;
It certainly couldn't be me, since in just a few posts prior, I replied to melgross saying the following: "True. At some point, given the amount to which it is piling up, they will have to do something with it."
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
You're getting it backwards. If you read what I wrote, I said that they gave a dividend because the share price had stagnated over several years, not the other way around.
Fair enough, I unintentionally merged what you wrote with Tbell. Still I read you as saying that stagnation of stock value is the only valid reason for a company to declare a dividend. I think that is far from the case. And in fairness I have yet to hear any argument against Apple declaring a modest dividend that could easily be paid out of cash flow, or any thoughts that we could discuss about where Apple could responsibly spend $50b, or at what point you might begin to question the accumulation of cash.
Fair enough, I unintentionally merged what you wrote with Tbell. Still I read you as saying that stagnation of stock value is the only valid reason for a company to declare a dividend. I think that is far from the case. And in fairness I have yet to hear any argument against Apple declaring a modest dividend that could easily be paid out of cash flow, or any thoughts that we could discuss about where Apple could responsibly spend $50b, or at what point you might begin to question the accumulation of cash.
I'm not against dividends on principle.
Ordinarily, growth companies don't give dividends, because the dividend is considered to be the rapidly rising stock price. As I mentioned in another post, it's the slow growing industrial and retail businesses that give dividends. In addition, semi regulated businesses such as those in the power producing industry give them.
Would I object if Apple gave a modest dividend as it used to? No, I wouldn't. I'm not adverse to getting tens of thousands of dollars in dividends from them each year. It's just that I don't think it will help the stock price. If they gave dividends during the recession while they were going down, would that have slowed it? No. Would the stock price be any higher now? No.
So the question is what benefit the company would see from it. None.
As far as their large cash hoard goes, well I don't know what they're planning, though we both know that they're always looking.
I would imagine that they are quire aware of the criticism some are leveling at them over it. That shouldn't be a concern of theirs.
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
I think they are in a quandary over it.
What to do? They wont buy something just to do it. How about Micron? They lost money, but they're a very good chip manufacturer, and Apple wanted to go with Samsung into the chipmaking business several years ago. If anything, they need a lot more chips now, and that need is obviously increasing at a good pace. I'm not saying they should do it, but it's the type of purchase they could consider, and I bet they have.
They could buy Palm and secure their 400 patents. Palm is now getting cheaper again. It's one month of cash for them, maybe less. It could head off a purchase from another company who might know what to do with them.
There have been rumors of Apple considering building a manufacturing plant here that was highly automated. That's a possibility. Manufacturing some products here is beginning to pay.
Ordinarily, growth companies don't give dividends, because the dividend is considered to be the rapidly rising stock price. As I mentioned in another post, it's the slow growing industrial and retail businesses that give dividends. In addition, semi regulated businesses such as those in the power producing industry give them.
Would I object if Apple gave a modest dividend as it used to? No, I wouldn't. I'm not adverse to getting tens of thousands of dollars in dividends from them each year. It's just that I don't think it will help the stock price. If they gave dividends during the recession while they were going down, would that have slowed it? No. Would the stock price be any higher now? No.
So the question is what benefit the company would see from it. None.
As far as their large cash hoard goes, well I don't know what they're planning, though we both know that they're always looking.
I would imagine that they are quire aware of the criticism some are leveling at them over it. That shouldn't be a concern of theirs.
The purpose of a dividend isn't to help the company or the stock price. The purpose is to share the company's wealth with the owners of the company, the stockholders. That's why Steve gets this question at every annual stockholder's meeting. Sadly, Steve has taken to dodging this question more and more artlessly. The impression a person can easily get from this prevarication is that Apple feels it needs to hang onto every penny of this immense cash backstop "for a rainy day," a theory that a shocking number of people seem to accept as reasonable. (When in it is in fact, very scary.)
And before anyone says it, a rising stock price does not share the company's accumulated wealth. It builds wealth of course and tracks the success of the company's business (we hope) but it shares nothing of what the company has actually gained materially. In Apple's case, this is a massive cash hoard fed by a massive cash flow. So stockholders will continue to very reasonably ask why they are not getting even a tiny taste.
As for slow growth being the reason for offering dividends, I think that you are being misled by history. Yes, historically, companies with large cash flows and limited opportunities for growth offer dividends to reward investor patience. However, you also need to consider that Apple is easily able finance growth opportunities out of cash flow, so the rationale behind continuing to grow the cash hoard is impossible to discern.
I know you mentioned these potential acquisitions just to get a rise out of me, so I won't disappoint you. These are precisely the sorts of investments that would bog the Apple down and hurt investors. If that was the real choice, I'd much rather see them pay out a big one-time dividend than make large, unwise acquisitions.
The purpose of a dividend isn't to help the company or the stock price. The purpose is to share the company's wealth with the owners of the company, the stockholders. That's why Steve gets this question at every annual stockholder's meeting. Sadly, Steve has taken to dodging this question more and more artlessly. The impression a person can easily get from this prevarication is that Apple feels it needs to hang onto every penny of this immense cash backstop "for a rainy day," a theory that a shocking number of people seem to accept as reasonable. (When in it is in fact, very scary.)
And before anyone says it, a rising stock price does not share the company's accumulated wealth. It builds wealth of course and tracks the success of the company's business (we hope) but it shares nothing of what the company has actually gained materially. In Apple's case, this is a massive cash hoard fed by a massive cash flow. So stockholders will continue to very reasonably ask why they are not getting even a tiny taste.
As for slow growth being the reason for offering dividends, I think that you are being misled by history. Yes, historically, companies with large cash flows and limited opportunities for growth offer dividends to reward investor patience. However, you also need to consider that Apple is easily able finance growth opportunities out of cash flow, so the rationale behind continuing to grow the cash hoard is impossible to discern.
I know you mentioned these potential acquisitions just to get a rise out of me, so I won't disappoint you. These are precisely the sorts of investments that would bog the Apple down and hurt investors. If that was the real choice, I'd much rather see them pay out a big one-time dividend than make large, unwise acquisitions.
It's interesting that we can argue the "purpose" of something while stating that historically, it can be true.
I've been doing this for a long time. I've seen companies give dividends, and take them away. I've seen them give them because they had the money, and because their stock was slipping. I've seen them give dividends long after they could afford to do so because their price would drop if they stopped them, and i've seen them take them away even thought they could afford to continue them.
I've never seen a rational pattern to this. As usual, it's subject to many reasons, and no one reason tops any other.
But, since we're talking historically, companies with quickly rising stock prices because of rapid growth in sales and profits do not USUALLY give dividends.
Apple though, is IN an unusual situation. As I said, I wouldn't object if they gave a modest dividend. I'm more concerned about stock buybacks, which I think of as worthless, and a poor use of cash. The company ends up with nothing to show for it. It's a sop to investors who want a quick fix.
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I totally disagree. Of all the things to do, that would be the worst.
I really don't understand the rational behind this. All it does is to shrink to pool of shares. So we get higher earnings per share, which is to be expected with less shares outstanding. It does nothing to increase the valuation of the company. It does nothing to increase the competitiveness of the company.
It's also temporary. There's no guarantee that doing this will keep the share price up. Often it drops back down again after some time.
And as a result, the money they purchased the stock with, and retired, is now gone in a puff of smoke.
It's interesting that we can argue the "purpose" of something while stating that historically, it can be true.
I've been doing this for a long time. I've seen companies give dividends, and take them away. I've seen them give them because they had the money, and because their stock was slipping. I've seen them give dividends long after they could afford to do so because their price would drop if they stopped them, and i've seen them take them away even thought they could afford to continue them.
I've never seen a rational pattern to this. As usual, it's subject to many reasons, and no one reason tops any other.
But, since we're talking historically, companies with quickly rising stock prices because of rapid growth in sales and profits do not USUALLY give dividends.
Apple though, is IN an unusual situation. As I said, I wouldn't object if they gave a modest dividend. I'm more concerned about stock buybacks, which I think of as worthless, and a poor use of cash. The company ends up with nothing to show for it. It's a sop to investors who want a quick fix.
I know, dividends come, dividends go. They get raised and lowered. Been there myself too. I'm not sure that's an argument against one, though, and I don't think Apple is not in the position to afford one. I always come back to $1.00 a year, which at the current price is a 0.4% yield and with the current float is a roughly $850m annual distribution. That, Apple could easily afford to pay out of cash flow.
The most important point is the last one, I think. Apple is in an unusual situation, in that they are throwing off a huge amount of free cash, a steadily growing amount of which they don't need for investing in future growth. If they were in a capital-intensive business, perhaps, but they are not. The only way they could reverse this situation (maybe) is if they started building factories for assembling products themselves instead of using jobbers. But they haven't been in the assembly business for years, so would that be wise?
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Originally Posted by anantksundaram
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I agree with melgross that a buyback is not a good way to spend the cash. If Apple wasn't interested in buying back when the stock was under $100, they could hardly be interested at $250.
I know, dividends come, dividends go. They get raised and lowered. Been there myself too. I'm not sure that's an argument against one, though, and I don't think Apple is not in the position to afford one. I always come back to $1.00 a year, which at the current price is a 0.4% yield and with the current float is a roughly $850m annual distribution. That, Apple could easily afford to pay out of cash flow.
The most important point is the last one, I think. Apple is in an unusual situation, in that they are throwing off a huge amount of free cash, a steadily growing amount of which they don't need for investing in future growth. If they were in a capital-intensive business, perhaps, but they are not. The only way they could reverse this situation (maybe) is if they started building factories for assembling products themselves instead of using jobbers. But they haven't been in the assembly business for years, so would that be wise?
Hmmm. I actually think we're getting closer.
There are two ways to look at this. One is they way you are, which is to say, from the investor's viewpoint. From that viewpoint, if a company generates cash beyond what the investor thinks they need, it should be given out to the investors. The other way to look at it is whether giving that cash out helps the company itself. It does not.
There is always some mingling between the two. I agree that from where WE sit, Apple has too much cash, and is generating it at a fairly rapid rate. So why not give some of it out? I have no real argument against that as long as investors aren't expecting a 5% rate of return, which some companies think they need to give.
I simply don't think it is going to help the company to give it out. I really don't think it will help the stock price long term. We see how volatile prices are. If Apple give a dividend, and the stock rises a few percent, bad news one day, whether Apple generated, or generated by outside forces could wipe it out. So much for the perception.
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I agree with melgross that a buyback is not a good way to spend the cash. If Apple wasn't interested in buying back when the stock was under $100, they could hardly be interested at $250.
Buybacks are to boost the price of the stock, usually when the stock is falling, or is perceived at being in danger of falling. It doesn't work. But somehow, analysts (Yes, the same people reviled here and other places for their lack of understanding of much things economic.) love the idea, and so we read about how wonderful it is.
Determining whether paying a dividend helps or hurts a company is a bit on theoretical side. Unless the payout is too large, and hampers the company's ability to invest adequately in new growth, it doesn't hurt. It helps stockholders though, who do after all own the company. As I have also suggested in the past, on the other side of the coin, is the tendency for companies with huge cash resources to feel like they must find a place for that money to be spent. That's where big and unwise acquisitions are born. Managers at large corporations are people too. They are hardly immune from the affects of having money burning holes in their pockets.
You are entitled to think that I worry too much about such things, considering the track record of Apple's management over the past several years. That is the argument against my concern. Exhibit A for the argument in favor of my concern is the money itself and its continued growth. Exhibit B is Steve's evasiveness in responding to stockholders' questions about what is for, and whether Apple is even considering paying a dividend. Those two facts have me worried about whether they could be planning to do something not very smart with the money, and potentially quite damaging to shareholder value.
Determining whether paying a dividend helps or hurts a company is a bit on theoretical side. Unless the payout is too large, and hampers the company's ability to invest adequately in new growth, it doesn't hurt. It helps stockholders though, who do after all own the company. As I have also suggested in the past, on the other side of the coin, is the tendency for companies with huge cash resources to feel like they must find a place for that money to be spent. That's where big and unwise acquisitions are born. Managers at large corporations are people too. They are hardly immune from the affects of having money burning holes in their pockets.
You are entitled to think that I worry too much about such things, considering the track record of Apple's management over the past several years. That is the argument against my concern. Exhibit A for the argument in favor of my concern is the money itself and its continued growth. Exhibit B is Steve's evasiveness in responding to stockholders' questions about what is for, and whether Apple is even considering paying a dividend. Those two facts have me worried about whether they could be planning to do something not very smart with the money, and potentially quite damaging to shareholder value.
In most things, I'm not a precipitous person. I like to measure twice and cut once.
This whole thing would have been easier if Apple did whatever they would be doing as the pile grew. Now it seems to be a problem, but I really don't think it is.
We've got the thinking that Apple isn't earning too much on this. But realizing profits and distributing some of it would cost in taxes. Not only is interest low, and possibly rate of return on their high quality short term investments, but so is inflation. As long as they have it, they are making money. If they give it away, they are not making money. So, until they decide what they should do with a big chunk, keeping it where it is, is benefitting the company.
What would happen if they did distribute a big chunk, such as $15 billion? If we agree that they don't need anywhere near what they've got, that number isn't that much. Well, their value would go down as well because the money they have is part of their valuation. If that happens, what happens to the stock which is partly tied to that valuation? It would likely go down by some percentage. Would that matter? probably no more than buying back stock. But you never can tell.
So perhaps Apple can give a dividend that equals, approximately, the increase in cash generated quarterly. The cash pile wouldn't shrink (well, it wouldn't be that simple of course), but it wouldn't grow.
In most things, I'm not a precipitous person. I like to measure twice and cut once.
This whole thing would have been easier if Apple did whatever they would be doing as the pile grew. Now it seems to be a problem, but I really don't think it is.
We've got the thinking that Apple isn't earning too much on this. But realizing profits and distributing some of it would cost in taxes. Not only is interest low, and possibly rate of return on their high quality short term investments, but so is inflation. As long as they have it, they are making money. If they give it away, they are not making money. So, until they decide what they should do with a big chunk, keeping it where it is, is benefitting the company.
What would happen if they did distribute a big chunk, such as $15 billion? If we agree that they don't need anywhere near what they've got, that number isn't that much. Well, their value would go down as well because the money they have is part of their valuation. If that happens, what happens to the stock which is partly tied to that valuation? It would likely go down by some percentage. Would that matter? probably no more than buying back stock. But you never can tell.
So perhaps Apple can give a dividend that equals, approximately, the increase in cash generated quarterly. The cash pile wouldn't shrink (well, it wouldn't be that simple of course), but it wouldn't grow.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I'm not arguing with what you're saying, just presenting a different viewpoint. I actually agree with most of it.
Apple stated that they generated $1.7 billion in cash this quarter. I'm not sure how you calculate your numbers. I was going by the number for cash that Apple releases. That would come out to about $6 billion a year, averaging last year with this year so far. That's not unreasonable for the dividend, and is more than you suggested, but less than twice as much. About $1.77 per share a year.
I have no idea what they're invested in, but if they're getting 5% in this environment, then more power to them! Being in banking would mean that they would have to loan out some of that.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I think you will be interested in this from Forbes, again, something they send me in the e-mail. Two links. The first explains it, and the second is at the bottom of the first. That's the link to the listings.
Comments
The AMD speculation was just that as far as I know. I'm opposed to them owning actual fabs, they should just design and contract with manufacturers, IMO.
AMD no longer has fabs either.
But for now...LET THE GOOD TIMES ROLL, BABY!
As was the custom for conquering Roman warriors upon their return, I hope Steve has someone who whispers in his ear, "All glory is fleeting." As much as we all (well, most, anyway) would like to see this continue forever there will be a slowing down or stumble at some point. The haters will be out banging pots and pans, and screaming at the top of their lungs on that day. We need to be ready for their onslaught.
But for now...LET THE GOOD TIMES ROLL, BABY!
Some sober and important sentiments there.
As was the custom for conquering Roman warriors upon their return, I hope Steve has someone who whispers in his ear, "All glory is fleeting." As much as we all (well, most, anyway) would like to see this continue forever there will be a slowing down or stumble at some point. The haters will be out banging pots and pans, and screaming at the top of their lungs on that day. We need to be ready for their onslaught.
But for now...LET THE GOOD TIMES ROLL, BABY!
I expect several more years of good times. Then, we'll see. But so far, every time it's said that there isn't another area in which they can excel, they prove them wrong.
Honestly, the iPad early success was a shock for Apple as well;
http://www.forbes.com/feeds/ap/2010/...partner=alerts
It certainly couldn't be me, since in just a few posts prior, I replied to melgross saying the following: "True. At some point, given the amount to which it is piling up, they will have to do something with it."
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
You're getting it backwards. If you read what I wrote, I said that they gave a dividend because the share price had stagnated over several years, not the other way around.
Fair enough, I unintentionally merged what you wrote with Tbell. Still I read you as saying that stagnation of stock value is the only valid reason for a company to declare a dividend. I think that is far from the case. And in fairness I have yet to hear any argument against Apple declaring a modest dividend that could easily be paid out of cash flow, or any thoughts that we could discuss about where Apple could responsibly spend $50b, or at what point you might begin to question the accumulation of cash.
Fair enough, I unintentionally merged what you wrote with Tbell. Still I read you as saying that stagnation of stock value is the only valid reason for a company to declare a dividend. I think that is far from the case. And in fairness I have yet to hear any argument against Apple declaring a modest dividend that could easily be paid out of cash flow, or any thoughts that we could discuss about where Apple could responsibly spend $50b, or at what point you might begin to question the accumulation of cash.
I'm not against dividends on principle.
Ordinarily, growth companies don't give dividends, because the dividend is considered to be the rapidly rising stock price. As I mentioned in another post, it's the slow growing industrial and retail businesses that give dividends. In addition, semi regulated businesses such as those in the power producing industry give them.
Would I object if Apple gave a modest dividend as it used to? No, I wouldn't. I'm not adverse to getting tens of thousands of dollars in dividends from them each year. It's just that I don't think it will help the stock price. If they gave dividends during the recession while they were going down, would that have slowed it? No. Would the stock price be any higher now? No.
So the question is what benefit the company would see from it. None.
As far as their large cash hoard goes, well I don't know what they're planning, though we both know that they're always looking.
I would imagine that they are quire aware of the criticism some are leveling at them over it. That shouldn't be a concern of theirs.
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
I think they are in a quandary over it.
What to do? They wont buy something just to do it. How about Micron? They lost money, but they're a very good chip manufacturer, and Apple wanted to go with Samsung into the chipmaking business several years ago. If anything, they need a lot more chips now, and that need is obviously increasing at a good pace. I'm not saying they should do it, but it's the type of purchase they could consider, and I bet they have.
They could buy Palm and secure their 400 patents. Palm is now getting cheaper again. It's one month of cash for them, maybe less. It could head off a purchase from another company who might know what to do with them.
There have been rumors of Apple considering building a manufacturing plant here that was highly automated. That's a possibility. Manufacturing some products here is beginning to pay.
I can think of a lot of interesting concepts.
And there's always Adobe.
Or Quark.
And there's always Adobe.
For selfish reasons I wish the would buy adobe. Least then I wouldn't have to use products directed by visionless gimps.
I'm not against dividends on principle.
Ordinarily, growth companies don't give dividends, because the dividend is considered to be the rapidly rising stock price. As I mentioned in another post, it's the slow growing industrial and retail businesses that give dividends. In addition, semi regulated businesses such as those in the power producing industry give them.
Would I object if Apple gave a modest dividend as it used to? No, I wouldn't. I'm not adverse to getting tens of thousands of dollars in dividends from them each year. It's just that I don't think it will help the stock price. If they gave dividends during the recession while they were going down, would that have slowed it? No. Would the stock price be any higher now? No.
So the question is what benefit the company would see from it. None.
As far as their large cash hoard goes, well I don't know what they're planning, though we both know that they're always looking.
I would imagine that they are quire aware of the criticism some are leveling at them over it. That shouldn't be a concern of theirs.
The purpose of a dividend isn't to help the company or the stock price. The purpose is to share the company's wealth with the owners of the company, the stockholders. That's why Steve gets this question at every annual stockholder's meeting. Sadly, Steve has taken to dodging this question more and more artlessly. The impression a person can easily get from this prevarication is that Apple feels it needs to hang onto every penny of this immense cash backstop "for a rainy day," a theory that a shocking number of people seem to accept as reasonable. (When in it is in fact, very scary.)
And before anyone says it, a rising stock price does not share the company's accumulated wealth. It builds wealth of course and tracks the success of the company's business (we hope) but it shares nothing of what the company has actually gained materially. In Apple's case, this is a massive cash hoard fed by a massive cash flow. So stockholders will continue to very reasonably ask why they are not getting even a tiny taste.
As for slow growth being the reason for offering dividends, I think that you are being misled by history. Yes, historically, companies with large cash flows and limited opportunities for growth offer dividends to reward investor patience. However, you also need to consider that Apple is easily able finance growth opportunities out of cash flow, so the rationale behind continuing to grow the cash hoard is impossible to discern.
I know you mentioned these potential acquisitions just to get a rise out of me, so I won't disappoint you. These are precisely the sorts of investments that would bog the Apple down and hurt investors. If that was the real choice, I'd much rather see them pay out a big one-time dividend than make large, unwise acquisitions.
The purpose of a dividend isn't to help the company or the stock price. The purpose is to share the company's wealth with the owners of the company, the stockholders. That's why Steve gets this question at every annual stockholder's meeting. Sadly, Steve has taken to dodging this question more and more artlessly. The impression a person can easily get from this prevarication is that Apple feels it needs to hang onto every penny of this immense cash backstop "for a rainy day," a theory that a shocking number of people seem to accept as reasonable. (When in it is in fact, very scary.)
And before anyone says it, a rising stock price does not share the company's accumulated wealth. It builds wealth of course and tracks the success of the company's business (we hope) but it shares nothing of what the company has actually gained materially. In Apple's case, this is a massive cash hoard fed by a massive cash flow. So stockholders will continue to very reasonably ask why they are not getting even a tiny taste.
As for slow growth being the reason for offering dividends, I think that you are being misled by history. Yes, historically, companies with large cash flows and limited opportunities for growth offer dividends to reward investor patience. However, you also need to consider that Apple is easily able finance growth opportunities out of cash flow, so the rationale behind continuing to grow the cash hoard is impossible to discern.
I know you mentioned these potential acquisitions just to get a rise out of me, so I won't disappoint you. These are precisely the sorts of investments that would bog the Apple down and hurt investors. If that was the real choice, I'd much rather see them pay out a big one-time dividend than make large, unwise acquisitions.
It's interesting that we can argue the "purpose" of something while stating that historically, it can be true.
I've been doing this for a long time. I've seen companies give dividends, and take them away. I've seen them give them because they had the money, and because their stock was slipping. I've seen them give dividends long after they could afford to do so because their price would drop if they stopped them, and i've seen them take them away even thought they could afford to continue them.
I've never seen a rational pattern to this. As usual, it's subject to many reasons, and no one reason tops any other.
But, since we're talking historically, companies with quickly rising stock prices because of rapid growth in sales and profits do not USUALLY give dividends.
Apple though, is IN an unusual situation. As I said, I wouldn't object if they gave a modest dividend. I'm more concerned about stock buybacks, which I think of as worthless, and a poor use of cash. The company ends up with nothing to show for it. It's a sop to investors who want a quick fix.
Perhaps or perhaps not, but since you and melgross are making fundamentally the same argument, I think it's entirely fair to ask when you think eventually come, what you think they will do with that much cash, and if at any point any sum of cash reserves can become excessive. Otherwise you are really arguing no sum is too large, no plan is necessary to use it, and dividends should never be declared under any circumstances.
That, if it wasn't obvious already, does not seem to me to be a sound argument. It's a shoulder-shrug argument.
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I totally disagree. Of all the things to do, that would be the worst.
I really don't understand the rational behind this. All it does is to shrink to pool of shares. So we get higher earnings per share, which is to be expected with less shares outstanding. It does nothing to increase the valuation of the company. It does nothing to increase the competitiveness of the company.
It's also temporary. There's no guarantee that doing this will keep the share price up. Often it drops back down again after some time.
And as a result, the money they purchased the stock with, and retired, is now gone in a puff of smoke.
It's interesting that we can argue the "purpose" of something while stating that historically, it can be true.
I've been doing this for a long time. I've seen companies give dividends, and take them away. I've seen them give them because they had the money, and because their stock was slipping. I've seen them give dividends long after they could afford to do so because their price would drop if they stopped them, and i've seen them take them away even thought they could afford to continue them.
I've never seen a rational pattern to this. As usual, it's subject to many reasons, and no one reason tops any other.
But, since we're talking historically, companies with quickly rising stock prices because of rapid growth in sales and profits do not USUALLY give dividends.
Apple though, is IN an unusual situation. As I said, I wouldn't object if they gave a modest dividend. I'm more concerned about stock buybacks, which I think of as worthless, and a poor use of cash. The company ends up with nothing to show for it. It's a sop to investors who want a quick fix.
I know, dividends come, dividends go. They get raised and lowered. Been there myself too. I'm not sure that's an argument against one, though, and I don't think Apple is not in the position to afford one. I always come back to $1.00 a year, which at the current price is a 0.4% yield and with the current float is a roughly $850m annual distribution. That, Apple could easily afford to pay out of cash flow.
The most important point is the last one, I think. Apple is in an unusual situation, in that they are throwing off a huge amount of free cash, a steadily growing amount of which they don't need for investing in future growth. If they were in a capital-intensive business, perhaps, but they are not. The only way they could reverse this situation (maybe) is if they started building factories for assembling products themselves instead of using jobbers. But they haven't been in the assembly business for years, so would that be wise?
I didn't think I could be more clear: so here it goes again: (I) Apple has too much cash; (II) Apple should do a share repurchase, since anything else would either be a waste of money or send the wrong signal.
I agree with melgross that a buyback is not a good way to spend the cash. If Apple wasn't interested in buying back when the stock was under $100, they could hardly be interested at $250.
I know, dividends come, dividends go. They get raised and lowered. Been there myself too. I'm not sure that's an argument against one, though, and I don't think Apple is not in the position to afford one. I always come back to $1.00 a year, which at the current price is a 0.4% yield and with the current float is a roughly $850m annual distribution. That, Apple could easily afford to pay out of cash flow.
The most important point is the last one, I think. Apple is in an unusual situation, in that they are throwing off a huge amount of free cash, a steadily growing amount of which they don't need for investing in future growth. If they were in a capital-intensive business, perhaps, but they are not. The only way they could reverse this situation (maybe) is if they started building factories for assembling products themselves instead of using jobbers. But they haven't been in the assembly business for years, so would that be wise?
Hmmm. I actually think we're getting closer.
There are two ways to look at this. One is they way you are, which is to say, from the investor's viewpoint. From that viewpoint, if a company generates cash beyond what the investor thinks they need, it should be given out to the investors. The other way to look at it is whether giving that cash out helps the company itself. It does not.
There is always some mingling between the two. I agree that from where WE sit, Apple has too much cash, and is generating it at a fairly rapid rate. So why not give some of it out? I have no real argument against that as long as investors aren't expecting a 5% rate of return, which some companies think they need to give.
I simply don't think it is going to help the company to give it out. I really don't think it will help the stock price long term. We see how volatile prices are. If Apple give a dividend, and the stock rises a few percent, bad news one day, whether Apple generated, or generated by outside forces could wipe it out. So much for the perception.
I agree with melgross that a buyback is not a good way to spend the cash. If Apple wasn't interested in buying back when the stock was under $100, they could hardly be interested at $250.
Buybacks are to boost the price of the stock, usually when the stock is falling, or is perceived at being in danger of falling. It doesn't work. But somehow, analysts (Yes, the same people reviled here and other places for their lack of understanding of much things economic.) love the idea, and so we read about how wonderful it is.
You are entitled to think that I worry too much about such things, considering the track record of Apple's management over the past several years. That is the argument against my concern. Exhibit A for the argument in favor of my concern is the money itself and its continued growth. Exhibit B is Steve's evasiveness in responding to stockholders' questions about what is for, and whether Apple is even considering paying a dividend. Those two facts have me worried about whether they could be planning to do something not very smart with the money, and potentially quite damaging to shareholder value.
Determining whether paying a dividend helps or hurts a company is a bit on theoretical side. Unless the payout is too large, and hampers the company's ability to invest adequately in new growth, it doesn't hurt. It helps stockholders though, who do after all own the company. As I have also suggested in the past, on the other side of the coin, is the tendency for companies with huge cash resources to feel like they must find a place for that money to be spent. That's where big and unwise acquisitions are born. Managers at large corporations are people too. They are hardly immune from the affects of having money burning holes in their pockets.
You are entitled to think that I worry too much about such things, considering the track record of Apple's management over the past several years. That is the argument against my concern. Exhibit A for the argument in favor of my concern is the money itself and its continued growth. Exhibit B is Steve's evasiveness in responding to stockholders' questions about what is for, and whether Apple is even considering paying a dividend. Those two facts have me worried about whether they could be planning to do something not very smart with the money, and potentially quite damaging to shareholder value.
In most things, I'm not a precipitous person. I like to measure twice and cut once.
This whole thing would have been easier if Apple did whatever they would be doing as the pile grew. Now it seems to be a problem, but I really don't think it is.
We've got the thinking that Apple isn't earning too much on this. But realizing profits and distributing some of it would cost in taxes. Not only is interest low, and possibly rate of return on their high quality short term investments, but so is inflation. As long as they have it, they are making money. If they give it away, they are not making money. So, until they decide what they should do with a big chunk, keeping it where it is, is benefitting the company.
What would happen if they did distribute a big chunk, such as $15 billion? If we agree that they don't need anywhere near what they've got, that number isn't that much. Well, their value would go down as well because the money they have is part of their valuation. If that happens, what happens to the stock which is partly tied to that valuation? It would likely go down by some percentage. Would that matter? probably no more than buying back stock. But you never can tell.
So perhaps Apple can give a dividend that equals, approximately, the increase in cash generated quarterly. The cash pile wouldn't shrink (well, it wouldn't be that simple of course), but it wouldn't grow.
In most things, I'm not a precipitous person. I like to measure twice and cut once.
This whole thing would have been easier if Apple did whatever they would be doing as the pile grew. Now it seems to be a problem, but I really don't think it is.
We've got the thinking that Apple isn't earning too much on this. But realizing profits and distributing some of it would cost in taxes. Not only is interest low, and possibly rate of return on their high quality short term investments, but so is inflation. As long as they have it, they are making money. If they give it away, they are not making money. So, until they decide what they should do with a big chunk, keeping it where it is, is benefitting the company.
What would happen if they did distribute a big chunk, such as $15 billion? If we agree that they don't need anywhere near what they've got, that number isn't that much. Well, their value would go down as well because the money they have is part of their valuation. If that happens, what happens to the stock which is partly tied to that valuation? It would likely go down by some percentage. Would that matter? probably no more than buying back stock. But you never can tell.
So perhaps Apple can give a dividend that equals, approximately, the increase in cash generated quarterly. The cash pile wouldn't shrink (well, it wouldn't be that simple of course), but it wouldn't grow.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I'm not arguing with what you're saying, just presenting a different viewpoint. I actually agree with most of it.
Apple stated that they generated $1.7 billion in cash this quarter. I'm not sure how you calculate your numbers. I was going by the number for cash that Apple releases. That would come out to about $6 billion a year, averaging last year with this year so far. That's not unreasonable for the dividend, and is more than you suggested, but less than twice as much. About $1.77 per share a year.
I have no idea what they're invested in, but if they're getting 5% in this environment, then more power to them! Being in banking would mean that they would have to loan out some of that.
I'm not talking about even that much. I haven't had a chance to take a close look at the free cash increase during the recently closed quarter, but the quarter before that the rate was about $1.25b per month, or in the neighborhood of $15b per year. Assuming that rate was to be turned into a dividend, it would (if I've done my math right) come out to about $17 per share. IOW, a whole lot more than I've suggested.
I don't believe that cash per share is a much examined statistic by investors. Even debt per share tends to be ignored, unless the company is loaded down with it. So I don't think it's additive or subtractive to market value in any measurable sense.
If Apple is getting high rates of return on quality short-term investments, I'd like to know what it is so I can buy some myself. Probably the best they can do is commercial paper. What could those loans pay, 5% annually at best? I understand no matter what income the derive from the cash, it's more than they'd have without the investments, and it goes to the bottom line. But at the same time, that's being in banking, not technology products, and certainly a far lower rate of return than they get on their actual business.
I think you will be interested in this from Forbes, again, something they send me in the e-mail. Two links. The first explains it, and the second is at the bottom of the first. That's the link to the listings.
http://www.forbes.com/2010/04/20/glo...0-intro_2.html