They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line Cloud company.
Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.
There is no value in Tesla other that talent, most of which Apple is already snatching away. Building car factories is not difficult. Tesla already opened their designs & patents for everyone to use.
All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.
I think the program is doing great. They retire shares and no longer have to pay dividends on those shares. They should continue this program for another year at the same breakneck pace. After another year of retiring shares they can consider raising the dividend and they will spend less money doing it. Also the EPS will be improved even if Wall Street fails to recognize it in a higher price.
There is no value in Tesla other that talent, most of which Apple is already snatching away. Building car factories is not difficult. Tesla already opened their designs & patents for everyone to use.
Actually building factories is hard and Apple is not good it it. They are good at paying others to do things for them like Foxconn. Tesla might be fair investment but since Apple is building their own car, buying Tesla is duplicating much of Apple's effort.
They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line Cloud company.
Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.
Your comment reminds me of an article I saw in Forbes a few years ago arguing that Apple should be more "acquisitive with its cash." The author suggested something like what you're suggesting for the same reason. According to the author of that article, Apple would be able to show the market that it was "back" with such an acquisition. Apple would show that it was bold enough to make those kinds of acquisitions.
I don't know what they've been teaching people in business school but acquisitions aren't supposed to be a contest of who can make the biggest acquisition. In fact, the larger the acquisition, the harder it is for the acquirer to execute the transaction properly. An acquisition should be made based on what the deal will do for the long-term prospects of the acquirer. Acquisitions should never be made in order to generate buzz in the media.
The real reason investors should love buybacks is that it removes unproductive excess cash from the balance sheet. Lets look at Apple, with a $650 billion market cap and $200 billon of cash and equivalents on the books. A dollar invested in Apple represents about 76 cents invested in the actual operating business, which is where the profits come from, and about 24 cents invested to buy a bit of that cash pile, earning about 1%. That split results in a less-than-ideal allocation of your invested dollar.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind (more efficient allocation of investor's dollars, increase in earnings multiple on operating business, and reduction in shares resulting in increase in earnings per remaining share) when he approached Tim Cook a couple years ago. He's still waiting for a real acceleration of the buyback, as am I.
Dividends per share have risen 37% from 38 cents to 52 cents over the last three years, but total dividends paid per quarter have risen only 20% from $2.5B to $3.0B over the same time -- due to the declining number of shares outstanding as a result of the buybacks. At the same time, cash on hand has increased 70%. Clearly, Apple could afford to raise dividends, perhaps even to $1.00 per share.
Market and investors like Icahn complained about buyback and dividends and Apple just did that again and again, but market keeps on bitching and comes up with another reason to keep this stock down. Times like this, I miss Steve. He wouldn't have given into Wall Street. He would have twitted with the new iOS 9.1 "middle finger" Emoji!
Once Apple chose to declare dividends, this was pretty much in the cards.
Dividends, once declared, cannot be rescinded except upon the pain of death. It sends a terrible signal. Once dividends are declared, it attracts a completely new clientele (Icahn personifies the type) that relentlessly wants more and more -- the beast has to be continuously fed. Additionally, the company begins to be viewed as a value stock rather than a growth stock.
Then the choices to return money to this clientele come down to only three: increase dividends (in which case you lock in even greater permanence of cash outflows), declare a special dividend (which does not have permanence, but has lousy tax implications for shareholders), or buy back shares (no permanence, better tax implications, can mitigate dilution to meet employee stock option exercises). Repurchases were the only option, really. And that is exactly what Apple has done. Now there's no turning back.
Some of us predicted precisely this sequence of events a few years ago when dividends were reintroduced. (It's interesting to recall that Microsoft went through a somewhat similar sequence of events).
The real reason investors should love buybacks is that it removes unproductive excess cash from the balance sheet. Lets look at Apple, with a $650 billion market cap and $200 billon of cash and equivalents on the books. A dollar invested in Apple represents about 76 cents invested in the actual operating business, which is where the profits come from, and about 24 cents invested to buy a bit of that cash pile, earning about 1%. That split results in a less-than-ideal allocation of your invested dollar.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind (more efficient allocation of investor's dollars, increase in earnings multiple on operating business, and reduction in shares resulting in increase in earnings per remaining share) when he approached Tim Cook a couple years ago. He's still waiting for a real acceleration of the buyback, as am I.
I think you make a number of good points. I am also tempted to suggest that Apple pays the $25B or so in taxes it owes the US government at the current rates under current law (this can be gleaned from the footnotes to the financial statements), bring back the rest (~175B), and add another $50B-$75B from this repatriated amount to its buyback plan. That will leave plenty of cash cushion for investments, R&D, dividends and debt servicing.
Plus, the incredible PR value of bringing the $$ back home, paying taxes on it, and 'investing' it here could be priceless. It could even force other US companies with similar cash piles to do something similar.
Cook needs to do something radical like this (and obviously something that is unlikely to be universally popular with shareholders) to move the needle.
They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line Cloud company.
Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.
Well, that's the stupidest post of the week. And you have lots of competition with Sog35 throwing out about 30 or more on just about every thread. You clearly know nothing about business, and even less about Apple.
I think you make a number of good points. I am also tempted to suggest that Apple pays the $25B or so in taxes it owes the US government at the current rates under current law (this can be gleaned from the footnotes to the financial statements), bring back the rest (~175B), and add another $50B-$75B from this repatriated amount to its buyback plan. That will leave plenty of cash cushion for investments, R&D, dividends and debt servicing.
Plus, the incredible PR value of bringing the $$ back home, paying taxes on it, and 'investing' it here could be priceless. It could even force other US companies with similar cash piles to do something similar.
Cook needs to do something radical like this (and obviously something that is unlikely to be universally popular with shareholders) to move the needle.
Needlessly incurring additional taxes by bringing cash back from overseas would result in massive class-action lawsuits against the company. It would be foolish.
How can you even suggest that? The buybacks have been a waste of shareholder $$$ - total waste. Do the math for yourself:
You hold 2,000 shares. Apple takes the same $100,000,000,000 divided by the roughly 6,000,000,000 shares = $16.67/share. Distribute that to the shareholders as a special dividend. In your case 2000 shares x $16.67 = $33,340 in your pocket. That gets the money back to the investors, clears the obscene amount of $$$ on the balance sheet, share price probably not impacted.
The real reason investors should love buybacks is that it removes unproductive excess cash from the balance sheet. Lets look at Apple, with a $650 billion market cap and $200 billon of cash and equivalents on the books. A dollar invested in Apple represents about 76 cents invested in the actual operating business, which is where the profits come from, and about 24 cents invested to buy a bit of that cash pile, earning about 1%. That split results in a less-than-ideal allocation of your invested dollar.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind (more efficient allocation of investor's dollars, increase in earnings multiple on operating business, and reduction in shares resulting in increase in earnings per remaining share) when he approached Tim Cook a couple years ago. He's still waiting for a real acceleration of the buyback, as am I.
I can tell you are much savvier than I am. But I think we can both see down the road, say 8-10 years, where Apple is earning $50+ per share because there are only 2 billion shares. As long as it stays undervalued. In fact, I'd be ok with canceling the dividend as long as it is applied towards the buyback. At least until we feel that we have a fair share price.
I've mapped out several scenarios where Apple can be around 500 million shares or less outstanding in 15-20 years. That would be quite the reward for long holders.
What's going on? A thread about Apple Stock and <a data-huddler-embed="href" href="/u/191133/sog35" style="display:inline-block;">@sog35</a>
isn't on it? Has he been banned or something?
Dont worry he will be back to his "Apple must go private mantra". There might be a microscopic bit of flesh on that horse that needs to be flogged.
Actually building factories is hard and Apple is not good it it. They are good at paying others to do things for them like Foxconn. Tesla might be fair investment but since Apple is building their own car, buying Tesla is duplicating much of Apple's effort.
I believe they are good at building things as most of the machines, in third party factories, used to make Apple products are design by Apple.
Needlessly incurring additional taxes by bringing cash back from overseas would result in massive class-action lawsuits against the company. It would be foolish.
Strongly doubt that. Do you have an example of any such lawsuit being filed against any company for this reason?
Needlessly incurring additional taxes by bringing cash back from overseas would result in massive class-action lawsuits against the company. It would be foolish.
Strongly doubt that. Do you have an example of any such lawsuit being filed against any company for this reason?
There is no such example I know of, for major companies. eBay repatriated $9B last year, and there was barely a ripple amongst its shareholders.
why doesn't apple spend the billions on dividends, which will reward long-term shareholders. If they spent $10/share dividends (this would amount to $56 billion, this would be around a 8.7% yield at the current share price. Everyone and their grandmother would buy and hold the shares just to get a constant quarterly dividends and it wouldn't matter as much that the share price isn't really moving much.
Given people's concerns about the long-term prospects for overall stock market gains over the next 3-5 years (mid-single digit growth), getting 8 % from a relatively safe investment seems like a no-brainer.
It's a bit tiring to see the share price not really reflect all the great things that the company is doing, like having one of the most profitable years in the history of the world. A dividend would provide a more direct link between the benefit to shareholders and the company's performance in a way that the stock price does not seem to be doing.
On the face of it, a good idea. The problem with it is that although it may encourage more people to buy Apple shares, which may consequently increase the share price due to supply & demand, they'll also have to pay out a bunch of cash to the share holders, which means Apple as an organisation doesn't win so much. To make matters worse, although Apple is sitting on the biggest pile of cash the world has ever seen, in order to give it to the share holders, Apple would have to re-patriate it and in doing so, make itself liable to a huge tax bill.
By implementing their current buy-back strategy, Apple get to borrow money to fund the buy-backs at really low interest rates because they can use their enormous pile of cash that they can't access as collateral. They then use that cheap loan to buy-back shares that will by any reasonable forecast increase in value by ten times or more what the interest on the loan will cost them. Apple makes sacks of cash to throw on the already considerable pile, bolsters their share price by taking cheap shares off the market, all of which makes their shares more attractive to buyers, fuelling further growth.
Why? Just because you don't agree with my opinion to go private? Report on what basis?
We are talking about the buyback which is one way to support the stock price. IMO, a better way to support the stock price is to threaten Wall Street with going private.
Oh, you want them to go private? I wasn't aware of that. Could you explain why?/s
Comments
At an average price of $114, how would Apple have "lost money"?
He doesn't understand what's happening. He is counting $14B in buyback plus $3B in dividends as expenses ($17B) taken from Apple's $11B profit.
They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line Cloud company.
Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.
There is no value in Tesla other that talent, most of which Apple is already snatching away. Building car factories is not difficult. Tesla already opened their designs & patents for everyone to use.
All well and good, but it's doing exactly zilch for their stock. Apple may want to consider ending this well-meaning program.
I think the program is doing great. They retire shares and no longer have to pay dividends on those shares. They should continue this program for another year at the same breakneck pace. After another year of retiring shares they can consider raising the dividend and they will spend less money doing it. Also the EPS will be improved even if Wall Street fails to recognize it in a higher price.
There is no value in Tesla other that talent, most of which Apple is already snatching away. Building car factories is not difficult. Tesla already opened their designs & patents for everyone to use.
Actually building factories is hard and Apple is not good it it. They are good at paying others to do things for them like Foxconn. Tesla might be fair investment but since Apple is building their own car, buying Tesla is duplicating much of Apple's effort.
They should rather have spent that $100B to buy Tesla and DropBox or some other top of the line Cloud company.
Amazon, Microsoft and Google all three went up on their sky high growth expectation of Cloud based services.
Your comment reminds me of an article I saw in Forbes a few years ago arguing that Apple should be more "acquisitive with its cash." The author suggested something like what you're suggesting for the same reason. According to the author of that article, Apple would be able to show the market that it was "back" with such an acquisition. Apple would show that it was bold enough to make those kinds of acquisitions.
I don't know what they've been teaching people in business school but acquisitions aren't supposed to be a contest of who can make the biggest acquisition. In fact, the larger the acquisition, the harder it is for the acquirer to execute the transaction properly. An acquisition should be made based on what the deal will do for the long-term prospects of the acquirer. Acquisitions should never be made in order to generate buzz in the media.
So a smart investor wants that cash removed from the books, which would either reduce the market cap of the company or, if the cash isn't being valued at even 1x its value, which could be argued is the case with Apple, removing that cash would leave the market cap where it is, which would then imply a higher earnings multiple against the productive operating side of the business, while also taking shares off the market, which would increase earnings per share going forward.
And a higher earnings multiple means that as earnings grow in the future, the stock will climb faster. Carl Icahn must have had all of these effects in mind (more efficient allocation of investor's dollars, increase in earnings multiple on operating business, and reduction in shares resulting in increase in earnings per remaining share) when he approached Tim Cook a couple years ago. He's still waiting for a real acceleration of the buyback, as am I.
Once Apple chose to declare dividends, this was pretty much in the cards.
Dividends, once declared, cannot be rescinded except upon the pain of death. It sends a terrible signal. Once dividends are declared, it attracts a completely new clientele (Icahn personifies the type) that relentlessly wants more and more -- the beast has to be continuously fed. Additionally, the company begins to be viewed as a value stock rather than a growth stock.
Then the choices to return money to this clientele come down to only three: increase dividends (in which case you lock in even greater permanence of cash outflows), declare a special dividend (which does not have permanence, but has lousy tax implications for shareholders), or buy back shares (no permanence, better tax implications, can mitigate dilution to meet employee stock option exercises). Repurchases were the only option, really. And that is exactly what Apple has done. Now there's no turning back.
Some of us predicted precisely this sequence of events a few years ago when dividends were reintroduced. (It's interesting to recall that Microsoft went through a somewhat similar sequence of events).
I think you make a number of good points. I am also tempted to suggest that Apple pays the $25B or so in taxes it owes the US government at the current rates under current law (this can be gleaned from the footnotes to the financial statements), bring back the rest (~175B), and add another $50B-$75B from this repatriated amount to its buyback plan. That will leave plenty of cash cushion for investments, R&D, dividends and debt servicing.
Plus, the incredible PR value of bringing the $$ back home, paying taxes on it, and 'investing' it here could be priceless. It could even force other US companies with similar cash piles to do something similar.
Cook needs to do something radical like this (and obviously something that is unlikely to be universally popular with shareholders) to move the needle.
Needlessly incurring additional taxes by bringing cash back from overseas would result in massive class-action lawsuits against the company. It would be foolish.
How can you even suggest that? The buybacks have been a waste of shareholder $$$ - total waste. Do the math for yourself:
You hold 2,000 shares. Apple takes the same $100,000,000,000 divided by the roughly 6,000,000,000 shares = $16.67/share. Distribute that to the shareholders as a special dividend. In your case 2000 shares x $16.67 = $33,340 in your pocket. That gets the money back to the investors, clears the obscene amount of $$$ on the balance sheet, share price probably not impacted.
BUYBACKS ARE NOT WORKING !!!
What's going on? A thread about Apple Stock and @sog35 isn't on it? Has he been banned or something?
I can tell you are much savvier than I am. But I think we can both see down the road, say 8-10 years, where Apple is earning $50+ per share because there are only 2 billion shares. As long as it stays undervalued. In fact, I'd be ok with canceling the dividend as long as it is applied towards the buyback. At least until we feel that we have a fair share price.
I've mapped out several scenarios where Apple can be around 500 million shares or less outstanding in 15-20 years. That would be quite the reward for long holders.
Actually building factories is hard and Apple is not good it it. They are good at paying others to do things for them like Foxconn. Tesla might be fair investment but since Apple is building their own car, buying Tesla is duplicating much of Apple's effort.
I believe they are good at building things as most of the machines, in third party factories, used to make Apple products are design by Apple.
Needlessly incurring additional taxes by bringing cash back from overseas would result in massive class-action lawsuits against the company. It would be foolish.
Strongly doubt that. Do you have an example of any such lawsuit being filed against any company for this reason?
There is no such example I know of, for major companies. eBay repatriated $9B last year, and there was barely a ripple amongst its shareholders.
why doesn't apple spend the billions on dividends, which will reward long-term shareholders. If they spent $10/share dividends (this would amount to $56 billion, this would be around a 8.7% yield at the current share price. Everyone and their grandmother would buy and hold the shares just to get a constant quarterly dividends and it wouldn't matter as much that the share price isn't really moving much.
Given people's concerns about the long-term prospects for overall stock market gains over the next 3-5 years (mid-single digit growth), getting 8 % from a relatively safe investment seems like a no-brainer.
It's a bit tiring to see the share price not really reflect all the great things that the company is doing, like having one of the most profitable years in the history of the world. A dividend would provide a more direct link between the benefit to shareholders and the company's performance in a way that the stock price does not seem to be doing.
On the face of it, a good idea. The problem with it is that although it may encourage more people to buy Apple shares, which may consequently increase the share price due to supply & demand, they'll also have to pay out a bunch of cash to the share holders, which means Apple as an organisation doesn't win so much. To make matters worse, although Apple is sitting on the biggest pile of cash the world has ever seen, in order to give it to the share holders, Apple would have to re-patriate it and in doing so, make itself liable to a huge tax bill.
By implementing their current buy-back strategy, Apple get to borrow money to fund the buy-backs at really low interest rates because they can use their enormous pile of cash that they can't access as collateral. They then use that cheap loan to buy-back shares that will by any reasonable forecast increase in value by ten times or more what the interest on the loan will cost them. Apple makes sacks of cash to throw on the already considerable pile, bolsters their share price by taking cheap shares off the market, all of which makes their shares more attractive to buyers, fuelling further growth.