A year after Apple announced its dividend, 'timing could be right' for another cash deployment

Posted:
in AAPL Investors edited January 2014
It's been almost a year since Apple announced its quarterly dividend and stock buyback plan, and with the company's annual shareholder meeting just concluded, one analyst believes Apple may soon reveal more uses for its $137 billion in cash.

It was March 19 of last year that Apple announced it would spend $45 billion over three years on a quarterly dividend and share repurchase program. On Monday, just over a week before that anniversary, analyst Brian White with Topeka Capital Markets said he thinks Apple is in a good position to announce its next move.

Cash

Apple added $38 billion in cash in fiscal 2011, but $16 billion in just the last quarter. Chart by Asymco.

"Given that Apple's recent shareholder meeting is out of the way and David Einhorn has completed his cash distribution campaign, the timing could be right for a bigger deployment of cash," he said.

While Apple held $137.1 billion in net cash at the end of the December quarter, White projects that money will grow to $241 billion by the end of Apple's fiscal year 2015. As the company's cash and investments continue to grow, some investors have heightened their calls for Apple to find a use for the money.

White believes Apple could increase its cash dividend from its current amount of $2.65 per share to between $3.75 and $5.00 per share on a quarterly basis, representing an annual yield of 3.5 percent to 4.6 percent.

Apple could also increase its stock repurchase program to as much as $100 billion as part of a 5-year initiative, the analyst believes.

Apple's annual shareholder meeting was held late last month, where Chief Executive Tim Cook admitted he is not happy with his company's stock performance over the last six months. But he also encouraged investors to think long term about Apple rather than concentrating on short-term trends.

The meeting went by without any movement toward a proposal from Einhorn, a hedge fund manager who made waves in suing Apple and attempting to persuade the company into providing preferred shares as a way to encourage investment and provide more of its cash to shareholders. For its part, Apple referred to the attention as a "sideshow."

Last week another prominent investor, Warren Buffett of Berkshire Hathaway, said he believes Apple should buy back more of its stock while it's at a depressed value. Beyond that, he said Apple's best strategy is to simply run its business well.
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Comments

  • Reply 1 of 47
    jdnc123jdnc123 Posts: 233member


    If Tim Cook believes in the long-term value of Apple as he told shareholders to think long-term, he would be buying the stock at these levels.  The inaction while sitting on mountains of cash can certainly be read to believe they think the stock goes even lower.


     


    Given Apple is the 5th cheapest stock on the S&P 500, trading at a discount to the likes of HPQ, DELL, AMD, INTC, etc. it is quite scary that the Board and management don't see value in buying their own stock.


     


    Apple is only a very short way from relinquishing the lead as the most valuable tech company in the world, with IBM about to pass it (enterprise value not market cap) and Google only slightly further behind.  With a more pronounced drop in Apple and a move up in Samsung, even they could soon surpass Apple in value.


     


    The disdain the market has for Tim Cook and his strategic moves (really lack thereof) is a reflection of a number of really, really bad decisions since taking over (maps, no traction with China Mobile, half-baked siri, no lower-cost phone, no large screen phone).  It is time to put up or shut up.  Anyone who bought the stock over the last year-plus has lost at least 20%.  Apple's biggest competitors (Google and Samsung) are at their all-time highs.  This is a Apple/Tim Cook problem.  Silence and secrecy worked for Steve Jobs, but when the market has no faith in the leader of the company that will not work.  A strategy needs to be articulated otherwise the market will believe their is none.  Unfortunately even if articulated, Apple has to execute and despite Cook's supply chain prowess, even execution seems to be a major problem for the company under him.

  • Reply 2 of 47
    The asymco chart is nice enough, except that it shows no data from 2012 which is the most important data as far as what's being decided now. Doesn't AI have access to more current data?
  • Reply 3 of 47
    jragostajragosta Posts: 10,473member
    It's been almost a year since Apple announced its quarterly dividend and stock buyback plan, and with the company's annual shareholder meeting just concluded, one analyst believes Apple may soon reveal more uses for its $137 billion in cash.

    Serious share buybacks would be the most logical thing since the stock is so severely undervalued.
  • Reply 4 of 47
    jd_in_sbjd_in_sb Posts: 1,481member


    Cash is a source of strength, flexibility and can power future innovations for a company. I never understood the concept of just giving it away to shareholders.

  • Reply 5 of 47
    monstrositymonstrosity Posts: 2,178member

    Quote:

    Originally Posted by jragosta View Post





    Serious share buybacks would be the most logical thing since the stock is so severely undervalued.


     


    Agreed. Screw the dividend, it's practically meaningless to me, and nor does it particularly help Apple as a company.

  • Reply 6 of 47
    lightknightlightknight Posts: 2,312member
    @jd_in_sb serious shareholders, as in people who actually value a share of the company, don't want to grab that cash. They want the company to become more powerful, richer, stronger. Only short-term "investors" (hah) would want that.
  • Reply 7 of 47
    lightknightlightknight Posts: 2,312member


    Companies that actually have served their investors' demands:


    Palm, RiM, HP, Packard-Bell, Nokia.


     


    Sounds like a plan.

  • Reply 8 of 47

    Quote:

    Originally Posted by jdnc123 View Post


    It is time to put up or shut up.



     


    For a one post troll, this is surprisingly to the point.


     


    It is time for Apple to do more than tweak existing products and accumulating cash, and PLEASE, stop fumbling the roll out of those tweaks. I don't expect a new product every year, every other year or even every three years, but the time is ripe for something new.

  • Reply 9 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by lightknight View Post


    Companies that actually have served their investors' demands:


    Palm, RiM, HP, Packard-Bell, Nokia.


     


    Sounds like a plan.



     


    RIMM, HP and Nokia currently trade at higher multiples than Apple


     


    For as many examples of companies that haven't performed by using cash to buyback stock and pay dividends there are just as many or more that have performed due to doing so.  IBM uses its cash to buyback stock and increase its dividends and it is about to surpass the value of Apple.


     


    Tell me why Apple should sit on cash, invest it in bonds, pay corporate taxes on those investments and then distribute some to shareholders in the form of dividends who then need to pay taxes also.  Just distribute the cash and if investors want to put that money in bonds, you are removing the double taxation.


     


    Apple chose not to use the cash to invest more in R&D or production capacity.  They could have bought Disney a couple years back for content at half its current price and generated $60 billion in gains for shareholders.  They could have bought Yahoo, Twitter, etc., etc. for much, much less when the markets crashed a few years ago.  Google bought youtube and the value of that business has skyrocketed since and will continue to grow.  They were in a position of power and simply chose not to invest to grow and hoard cash for no apparent reason and the position of power is now one of playing catch up as others invested to grow moreso than the company most able to do so.  As someone recently put it, Google is getting better at what Apple does (hardware) faster than Apple is getting better at what Google does (software).  How is that possible when Apple has all the resources in the world to beat anyone they want at any game.  They are simply choosing not to.  They are choosing not to go after markets that will increase profits as they stick to the 'we want to be good at only a few things' mantra.  Worked in the past but the market isn't going to pay a high multiple for a company and management team that is intentionally choosing not to grow.  Current sentiment is basically that Tim Cook simply doesn't care about growing earnings or about his shareholders.  

  • Reply 10 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by jdnc123 View Post

    RIMM, HP and Nokia currently trade at higher multiples than Apple


     


    Amazon's P/E was 3,400+ before it mysteriously disappeared entirely. Your point?





    Tell me why Apple should sit on cash, invest it in bonds, pay corporate taxes on those investments and then distribute some to shareholders in the form of dividends who then need to pay taxes also.  Just distribute the cash and if investors want to put that money in bonds, you are removing the double taxation.



     


    Tell me why Apple should "distribute" their cash that they earned?


     




    Apple chose not to use the cash to invest more in R&D or production capacity.




     


    Money ? more R/D. Heck, money ? production capacity. Not when you can't find workers.


     




    They could have bought Disney a couple years back for content at half its current price and generated $60 billion in gains for shareholders.




     


    1. Proof of gains?


    2. Complete nonsense. Multiple orders of magnitude more complexity (Do you have any idea what Disney OWNS? and IS? and how they BEHAVE?) for zero gains.


     




    They could have bought Yahoo, Twitter, etc., etc. for much, much less when the markets crashed a few years ago.




     


    The point of which would have been what?


     




    Google bought youtube and the value of that business has skyrocketed since and will continue to grow.




     


    Haven't they ALWAYS lost money on YouTube?


     




    They were in a position of power and simply chose not to invest to grow and hoard cash for no apparent reason 




     


    Exactly. The reason isn't apparent to you. I'm glad you at least acknowledge they have a reason.






    and the position of power is now one of playing catch up




     


    LOL, you'll have to be a little more creative than that.






    How is that possible when Apple has all the resources in the world to beat anyone they want at any game.  They are simply choosing not to.  They are choosing not to go after markets that will increase profits as they stick to the 'we want to be good at only a few things' mantra.




     


    Of course, you know these things because… ?






    Current sentiment is basically that Tim Cook simply doesn't care about growing earnings or about his shareholders.




     


    Sentiment among…? Proof thereof?

  • Reply 11 of 47


    Do some serious Buybacks. Innovate faster (Excuse cannot be made that competitors copy) and smarter than Samdung and Google and make some great acquisitions!  Don't just rely on hardware for longer term growth!

  • Reply 12 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by helicopterben View Post

    Innovate faster…


     


    If nothing else, I like how efficiently this sums up a lack of knowledge.

  • Reply 13 of 47
    majjomajjo Posts: 574member

    Tell me why Apple should "distribute" their cash that they earned?

    Why should Apple's stock be worth more than it currently is?
  • Reply 14 of 47
    igrivigriv Posts: 1,177member

    Quote:

    Originally Posted by jd_in_sb View Post


    Cash is a source of strength, flexibility and can power future innovations for a company. I never understood the concept of just giving it away to shareholders.



     


    "Cash is a source of strengh, flexibilility, and can power a future McMansion purchase. I never understood the concept of just using it to buy food".

  • Reply 15 of 47
    igrivigriv Posts: 1,177member

    Quote:

    Originally Posted by monstrosity View Post


     


    Agreed. Screw the dividend, it's practically meaningless to me, and nor does it particularly help Apple as a company.



     


    If it's meaningless to you, I guess you won't mind signing your dividend check over to me...

  • Reply 16 of 47
    igrivigriv Posts: 1,177member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    Amazon's P/E was 3,400+ before it mysteriously disappeared entirely. Your point?


     


    Tell me why Apple should "distribute" their cash that they earned?


     


     


     


    Money ? more R/D. Heck, money ? production capacity. Not when you can't find workers.


     


     


     


    1. Proof of gains?


    2. Complete nonsense. Multiple orders of magnitude more complexity (Do you have any idea what Disney OWNS? and IS? and how they BEHAVE?) for zero gains.


     


     


     


    The point of which would have been what?


     


     


     


    Haven't they ALWAYS lost money on YouTube?


     


     


     


    Exactly. The reason isn't apparent to you. I'm glad you at least acknowledge they have a reason.


     


    LOL, you'll have to be a little more creative than that.


     


    Of course, you know these things because… ?


     


    Sentiment among…? Proof thereof?



    1. Amazon has a completely different business model. However, it is interesting that they have been extremely successful building their business WITHOUT sitting on a huge pile of of cash, which is being eroded by inflation every day.


    2. I agree that buying Disney would not have been wise.


    3. Google now makes money on YouTube (or so people at Google tell me).


    4. Apple's R&D spend is quite low (2.2% of revenue vs 5.7% for Samsung). R&D spend is not sufficient to innovate, but it IS necessary.

  • Reply 17 of 47
    jragostajragosta Posts: 10,473member
    igriv wrote: »
    1. Amazon has a completely different business model. However, it is interesting that they have been extremely successful building their business WITHOUT sitting on a huge pile of of cash, which is being eroded by inflation every day.

    Considering that they never generated a pile of cash comparable to Apple's, the fact that they're not sitting on one is pretty obvious.

    A profitable business generates cash. You can do three things with the cash:
    1. Buy things. (This is what Amazon has done).
    2. Send the cash to investors
    3. Keep the cash.

    'Buy things' is not inherently better than 'Keep the cash'. In fact, unless the things you buy are intrinsically more valuable than the cash, it's a losing game. Apple has bought things, as well - but hasn't found enough things that justify spending the money. That doesn't mean that they won't find more tomorrow.
    igriv wrote: »
    2. I agree that buying Disney would not have been wise.
    3. Google now makes money on YouTube (or so people at Google tell me).

    Even if true, 98% of their profits still come from search. To the extent that the purchase of Yahoo might have expanded their search business, it might have been a success, but the profit on Yahoo itself is incidental.
    igriv wrote: »
    4. Apple's R&D spend is quite low (2.2% of revenue vs 5.7% for Samsung). R&D spend is not sufficient to innovate, but it IS necessary.

    And, yet, Samsung deliberately and obviously has to copy Apple's products. Fortunately, Apple learned long ago to measure their R&D efforts by results, not by expenditures. If you can lead everyone else and completely reinvent a new market every few years, isn't it better if you can do that with only spending 2% of revenues rather than spending 3 times as much?
  • Reply 18 of 47
    flaneurflaneur Posts: 4,466member
    igriv wrote: »
    1. .
    4. Apple's R&D spend is quite low (2.2% of revenue vs 5.7% for Samsung). R&D spend is not sufficient to innovate, but it IS necessary.

    I doubt that it's wise to compare Samsung and Apple when it comes to R&D, unless you are pointing out how different their two businesses are. For starters, Apple doesn't do manufacturing of chips or displays (yet), nor their own hardware in almost any aspect. Apple's R&D has to be more targeted in line with what they can actually do themselves. They may be spending quite heavily, $10 billion a year or so, in what they are planning to do in the future. You'd need to break out their CapEx figures to say anything sensible. But you can't, of course.
  • Reply 19 of 47
    jdnc123jdnc123 Posts: 233member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    Amazon's P/E was 3,400+ before it mysteriously disappeared entirely. Your point?


     


    Tell me why Apple should "distribute" their cash that they earned?


     


     


     


    Money ? more R/D. Heck, money ? production capacity. Not when you can't find workers.


     


     


     


    1. Proof of gains?


    2. Complete nonsense. Multiple orders of magnitude more complexity (Do you have any idea what Disney OWNS? and IS? and how they BEHAVE?) for zero gains.


     


     


     


    The point of which would have been what?


     


     


     


    Haven't they ALWAYS lost money on YouTube?


     


     


     


    Exactly. The reason isn't apparent to you. I'm glad you at least acknowledge they have a reason.


     


    LOL, you'll have to be a little more creative than that.


     


    Of course, you know these things because… ?


     


    Sentiment among…? Proof thereof?



     


    Apple trades at a low p/e because the market doesn't believe its margins are sustainable and see not enough top-line growth to offset the margin erosion.  Articulating a long-term strategy would help the p/e.  Further, buying back stock helps earnings per share grow.


     


    Actually shareholders own the company, not the Board or management.  If they have no ideas for the cash, shareholders likely have something better to do with it than stick it in the bank earning nothing.


     


    Disney has increased in value by $60 billion the last few years.  Listen it is unlikely they would have been a willing seller at multi-year lows and certainly not a cash seller (maybe would have taken Apple stock), but the point of Disney, Yahoo, Twitter, Youtube is all those businesses have increased in value far, far, far more than the value of Apple's cash has increased since they began stockpiling.  Even Tim Cook has said they have looked at large acquisitions.  Virtually any acquisition done in the last few years is worth more today, they would have increased shareholder value.


     


    I just saw a report that said youtube was worth as much as Netflix, a $9 billion EV company.  I think Google paid $1 billion.  9x your return on investment is a good thing whether the cash flow generated justifies it or not.  


     


    The reason they aren't investing or using the cash isn't apparent to anyone outside the company.  


     


    The company has lost $260 billion of market cap since its highs.  It has lost even more in enterprise value (true value of a company) due to the cash build over that timeframe.  I get it, perception and reality are different things, especially in the market, but that amount of lost value isn't simply due to a sentiment change, isn't due to short-term traders, isn't due to hedge funds.  Apple will have negative earnings growth this fiscal year.  Its tough  when the law of large numbers work against you, but the market pays for growth.  It expects companies to grow and when they don't, the stock prices fall.  Apple is having mix issues that impact margins.  They could roll out a high-end, larger screen phone to offset some of that, but will apparently not have one until two years after the competition went down that path.  I for one, would love a larger screen iPhone (not absurdly large, but larger) and would pay up for it.  Tim Cook said on the last conference call that they had spent a lot of time thinking about screen size and they believe they have the right size.  When customers are clamoring for something and the CEO basically says we could do it, but don't want to give customers what they want, how is that not arrogant?  Regardless, they will be following and catching up when they do finally release a large screen iPhone - and they will.  They will be playing catch up to what some - not all - customers want.


     


    Simple question.  Do you want the company to just create cool new products or should they grow earnings.  Apple the company and Apple the stock are two different things.  The company is still strong.  The stock is weak.  The disconnect has been self-inflicted, in my opinion and I think that is the issue some shareholders are concerned about.  Sentiment can shift on a dime.  Maybe investors will start to love Apple again, maybe they won't.  History has shown these kinds of collapses take years or decades to reverse.  Tim has his work cut out to show Apple can be different in that regard and there certainly should be some concern that a company who pays out a lot of compensation in stock will begin to lose talent if its stock currency is a flat-lining or declining value.  That is the big risk, that we begin to see a brain drain as employees see better places to monetize their talents and ideas than in a stock that is stuck in the mud.


     


    Regards

  • Reply 20 of 47
    tallest skiltallest skil Posts: 43,399member


    Originally Posted by jdnc123 View Post


    The reason they aren't investing or using the cash isn't apparent to anyone outside the company.  



     


    Why does it have to be?





    When customers are clamoring for something and the CEO basically says we could do it, but don't want to give customers what they want, how is that not arrogant?



     


    Because you're just making up complete crap at this point.


     



    Simple question.  Do you want the company to just create cool new products or should they grow earnings.  



     


    Just create cool new products. The former begets the latter. Screw caring about the stock. Screw the stock market entirely. If they make desirable products, they will grow earnings. It's just that effing simple. Buying another company for the sole purpose of "increasing value" will do exactly the opposite.


     


    Do you have any idea how vast Disney is, for example? Why would Apple want to buy an animation studio, a 3D animation studio, three live action film distribution studios, multiple theme parks, and the rights to the entirety of Marvel and Lucasfilm? Why would Apple want to streamline all of that while being forced to continue to promise everything that Disney had already promised? When Apple buys something, it's because they need it for a product they're already making. Disney offers zero products, zero ideas, and introduces multiple entirely new industries in which Apple has zero (and wants zero) presence but is now forced to manage.


     


    Never mind that Apple owning some of the content it provides wouldn't sit will with, oh, everyone else with whom they contract in iTunes, et. al.






    Apple the company and Apple the stock are two different things.



     


    When you see those articles, you have to think about these things. The people that write them don't. All they think about is temporarily jacking up the stock price of whatever company Apple is "slated" to buy. That's the fundamental difference between Apple and these idiots: Apple couldn't care less about the stock since they care about their products. Others care only about the stock and their products suffer.

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