Apple's $62.9 billion stock buyback program called a bad investment in new report

Posted:
in AAPL Investors edited December 2018
A new report is calling Apple's stock buyback program, which amounted to $62.9 billion in the first half of 2018, a bad investment, while ignoring the actual impact of what happens when a company retires shares.

Cash pilePile of US currency


A new report by the Wall Street Journal highlights the money that companies have spent on stock buyback programs after a tax break by the federal government, and uses Apple as an example. Noting that the $62.9 billion that Apple spent repurchasing its own shares is now "worth" just $54 billion had the stock been retained, the publication claims that the figure represents a loss of $9 billion had they purchased the shares at today's market price of $151.

The report spends very little time noting that those repurchased shares were retired, however, and no longer have any direct monetary value. The retirement boosts the earnings per share metric that the company must report every quarter.

Apple has repurchased shares across all of 2018, paying as high as $222 a share. Any company that spends that amount of funds on rebuying their own stock will occasionally have time in the red. Repurchasing has other benefits to the company, such as reducing the number outstanding shares and buoying the dividend value per share paid to investors.

Many U.S. companies including Apple have been buying back stocks at a fever pace this year after the passage of the Tax Cuts and Jobs Act in December 2017 which dropped the corporate tax rate from 35 percent to 21 percent, also allowing Apple and most of the rest of the Fortune 500 companies in the U.S. to repatriate large sums of offshore cash.
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Comments

  • Reply 1 of 147
    Too many idiots feeling free to make stupid comments ... thats the journalism of today. Buyback are not an investment in value gain.. They are intended to reduce share count and boost eps.. Share values are directly effected by eps. In the long run.. actually this massive drop in share prices is a great thing for the buyback program. Many more shares can be bought back and retired.
    edited December 2018 SpamSandwichflydogABiteaDaychasmGeorgeBMacpslicemacxpressequality72521Thrashmanradarthekat
  • Reply 2 of 147
    So... Apple’s upper level management & board don’t know wtf they’re doing... according to the ‘brilliant minds’ at the WSJ and other financial news outlets. If only Apple had the guidance of all of the supply chain gurus, imagine where the company/stock could be now....
    /s
    yojimbo007SpamSandwichflydogABiteaDaychasmstompybackstabbaconstangequality72521
  • Reply 3 of 147
    Buybacks only make sense if you are getting fees from the transaction. 

    If you do the math and figure in all the impacts, paying a special dividend would be a better use if the intent was to return money to shareholders.
    jasenj1
  • Reply 4 of 147
    davgreg said:
    Buybacks only make sense if you are getting fees from the transaction. 

    If you do the math and figure in all the impacts, paying a special dividend would be a better use if the intent was to return money to shareholders.
    Depends who you ask. I believe Buffett has said he doesn’t like special dividends because it doesn’t allow the investors to control their taxable income. A buyback increases shareholder value without actually distributing the money unless the investor chooses to sell.
    beowulfschmidtdamn_its_hotstompybaconstangThrashmanradarthekat
  • Reply 5 of 147
    It was a badly timed trade but that doesn’t necessarily make it a bad investment.


    baconstangThrashmanradarthekat
  • Reply 6 of 147
    As an AAPL owner, I can't say that I've seen any benefit from the buy backs. My understanding is that buy backs are supposed to increase the value of the remaining shares. But AAPL continues to be volatile and be manipulated by analyst "news". Maybe my dividend has increased - I haven't watched it closely; I'm sure there's a chart out there somewhere that could show dividend vs shares outstanding or some such, and hopefully the buy backs would show a real impact there. Anyone have a link to a "here's why the buy backs were good for AAPL owners" article?
  • Reply 7 of 147
    danoxdanox Posts: 360member
    I own enough shares in Apple that if Apple were to raise the dividend to 1.3 dollars a share up from .733 a share, I could walk away from the 9 to 5 grind, naturally I think buybacks are a utter waste of money, money directly in your pocket after tax is always best for you.
    Thrashman
  • Reply 8 of 147
    NY1822NY1822 Posts: 567member
    The same story can be written whenever the stock declines...as evidenced in 2016
    http://fortune.com/2016/02/02/apple-stock-buyback/
    SpamSandwichchasmstompy
  • Reply 9 of 147
    crowleycrowley Posts: 5,635member
    jasenj1 said:
    My understanding is that buy backs are supposed to increase the value of the remaining shares. 
    No, obviously not, otherwise companies would just buy back shares all the time.  The only way to increase the value of shares it to get the market to recognise increasing value in the company.  What share buy backs do is express a clear signal of the company's faith that the shares are undervalued, and therefore worth buying.

    If the market believes the company (and all other things being equal), then more people want to buy shares, and the share value goes up.  If the market doesn't believe the company, or if other things (like for example, an idiot president) happen, then the share value may go down.

    Analysts saying it's a bad investment are day trading idiots who think that because they have the privilege of hindsight, they are somehow geniuses.  Given Apple's P/E it was a fine investment, that has been undercut in the short term by political events. 
    chasmbrucemcradarthekat
  • Reply 10 of 147
    jasenj1 said:
    As an AAPL owner, I can't say that I've seen any benefit from the buy backs. My understanding is that buy backs are supposed to increase the value of the remaining shares. But AAPL continues to be volatile and be manipulated by analyst "news". Maybe my dividend has increased - I haven't watched it closely; I'm sure there's a chart out there somewhere that could show dividend vs shares outstanding or some such, and hopefully the buy backs would show a real impact there. Anyone have a link to a "here's why the buy backs were good for AAPL owners" article?
    The math is pretty simple.  Apple buys 5% to 6% of their outstanding shares every year, which boosts the EPS numbers by roughly the same amount.  Combined with their annual profit increase of 6% to 7%, the total earnings growth becomes 12%. At this rate, their EPS will nearly double in the next 5 years.  Over long term, stock prices track EPS pretty closely.

    You might find the following article interesting:


    yojimbo007baconstangjasenj1radarthekatbruce ketchum
  • Reply 11 of 147
    What was the opportunity cost of using those funds to buy back their stock? What other investment could they have made instead?
    GeorgeBMacbaconstangFatman
  • Reply 12 of 147
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    ronnGeorgeBMacbaconstang
  • Reply 13 of 147
    I guess the intention was that the buybacks would reduce the shares in circulation and thus the remaining shares would be of higher value. 

    It it would also reduce the amount paid out in dividends. 

    What they didnt factor in was the share price collapse. So shareholder value hasn’t exactly worked out well for those who hung onto their shares after they peaked at $227. A multitude of mistakes on Apples part and a series of timed articles to pull the stock down. 

    People on these forums say the analysts and WSJ don’t get it , and the stock is manipulated. Etc etc. The truth however is that they do get it.. the world isn’t fair and that the word of the media and analysts do indeed manipulate the stock, but that’s just normal and they leverage it to make money. No surprise there. Expect to be played if investing in stock. If you make money, chances are it’s only because some other heavy weight players are. 
    edited December 2018 elijahg
  • Reply 14 of 147
    sflocalsflocal Posts: 4,382member
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    *yawn*

    AAPL treated me quite well.
    elijahgThrashman
  • Reply 15 of 147
    Since this buyback program has been going on for years now, Apple is essentially dollar cost averaging their buyback thusly making it a better deal than any short-term analysis will demonstrate.
    radarthekat
  • Reply 16 of 147
    jasenj1 said:
    As an AAPL owner, I can't say that I've seen any benefit from the buy backs. My understanding is that buy backs are supposed to increase the value of the remaining shares. But AAPL continues to be volatile and be manipulated by analyst "news". Maybe my dividend has increased - I haven't watched it closely; I'm sure there's a chart out there somewhere that could show dividend vs shares outstanding or some such, and hopefully the buy backs would show a real impact there. Anyone have a link to a "here's why the buy backs were good for AAPL owners" article?
    You have.. you just dont realize it. Buybacks directly effect eps.. and your share values are directly effected by eps. What some fail to see is what the share value would have been without the buybacks ( lower )
    edited December 2018 urashidbaconstang
  • Reply 17 of 147
    danox said:
    I own enough shares in Apple that if Apple were to raise the dividend to 1.3 dollars a share up from .733 a share, I could walk away from the 9 to 5 grind, naturally I think buybacks are a utter waste of money, money directly in your pocket after tax is always best for you.
    Sounds like maybe you have enough shares you could sell some and walk away from the Grind.
    baconstang
  • Reply 18 of 147
    Buy backs never should have been allowed. They want to reinvest the reinvest into the company by investing in new ventures and hiring. Apple's P/E is minuscule. Reducing it a fraction lower does nothing for incentivizing future investors to climb aboard, amp up the price and theoretically eventually cause a stock split--one of only two ways I earn more via a Dividend is splits and/or increase in the actual dividend per share.

    Nothing will drive this stock back up until Apple has fully developed their Studio ventures ala Netflix and the market realizes the Smartphone isn't waning, but taking longer to replace year over several years, instead of year over year.

    This means the services [cloud in particular] needs to become far more capable for business ends, and consumer ends to a lesser extent.

    Developing a full-fledged Streaming collection like Netflix will happen. Expanding more into the Smart Home will like bloom with joint relationships.

    The Auto venture is the big guess right now. If they develop a car they are better off buying a company like Lucid Motors and a Canadian firm Electra Meccanica.

    https://lucidmotors.com


    You want Apple to make an impact in EVs those two firms are it.

    Lucid got the Saudi Billions Tesla bragged would get. CTO is ex-Tesla chief.

    Meccanica already has 60k pre-orders of two of its models. It's a winner.

    elijahgphilboogie
  • Reply 19 of 147
    melgrossmelgross Posts: 31,323member
    What happens is that the money goes down a black hole, while there’s no evidence that shares go up at all.
    GeorgeBMacelijahgjasenj1
  • Reply 20 of 147
    Who gives a flying hoot whether it was good or bad for Apple. Stealing poor people's healthcare and giving the money to the rich was horrendous public policy.

    We were promised increased investment, not stock buybacks for Apple shareholders. That didn't happen.
    What about my healthcare? Why was it OK to steal from the vast majority of the people in order to create an unsustainable giveaway to the insurance lobby? The Federal government should never have gotten tangled up in the gigantic mess that they have created in the healthcare markets.
    mac_dogtbornot
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