I am not a big fan of stock buy backs for Apple. The main issue I have is that Apple has to take out debt to buy the stock back and it has gone from being debt free to having over $100 Billion of long term debt that now costs over 4% to service. Yes they generate lots of cash and are able to service the debt but things can change rapidly in the tech industry and that could be a problem in the future. If they did a better dividend scheme, say 50% of all net profit paid out as a dividend the return would be very healthy and by it's nature always serviceable and they could reduce their long term debt substantially. I know dividends create issues when so much of the profit (greater than 54%) is generated overseas and that a lot of people will go on about lazy balance sheets, and I understand their thinking, but I would rather they had bigger cash reserves, less debt and did some better acquisitions than so much in buy backs. Having said all of that I am very fortunate to have done well from my shareholding in Apple over a 20 year period and extremely grateful for that - I just don't like the massive buy backs.
What you wrote is complete bullshit. Stock buybacks leave Apple in a cash neutral position. Apple does not borrow money to buy back stocks, nor does it have to because net income far exceeds what it spends on stock buybacks. Apple currently has less than $100 billion in long-term debt, and that amount has remained largely the same over the past 8 years, during which time Apple repurchased nearly $600 billion in stock.
As noted above, Apple does borrow, but that is done to avoid taxes from bringing home cash from overseas operations. The interest Apple pays on that debt service is far less than it would pay in taxes, so your scheme to retain cash to avoid incurring debt makes zero sense. Nor would it benefit shareholders since it would actually reduce net income and cash on hand.
Buybacks are also more beneficial to shareholders because dividends are taxed (and generally taxed as ordinary income). Capital gains taxes are generally lower than taxes on dividends, and the shareholder can plan sales to offset losses to minimize overall tax burden.
And what acquisitions would Apple make? Netflix? Disney? Tesla? Give me a break.
I'm throwing this out there with zero intent of starting an off-topic discussion. It's just food for thought, please.
Is there no better use for $110 Billion than burning it? It's not "returning it to investors" in any quantifiable way, and the stock gets burned once repurchased. Poof!
They aren't alone in this either. Big US tech seems clueless about what to do with the (declared) $600 billion+ they hoard without a purpose. But Apple, along with the rest of the Gang of Five, wants to be thought of as caring companies trying to make the world a better place. This isn't it IMO.
That is just plain wrong and many thinks the same way.
When Apple retire (burn) the AAPL shares they buy back, the percent of ownership of Apple, Inc. that those shares represent gets transferred to the remaining outstanding shares. They didn't just go ... poof!. It might not seem like $110B buyback is going to make a significant increase in the percent of ownership of Apple Inc. per share. But if a corporation do buy backs over a long period of time, it adds up and the added percentage of ownership per share becomes significant and indeed returning to the investors in a quantifiable way. Now if Apple didn't retire (burn) those buy back shares, then the buy backs won't add to AAPL share holders investment as Apple would still be able to reissue those shares any time they need cash.
IMO- your ....... "food for thought" ...... still left us starving.
So you claim the return to Apple investors is quantifiable, and I say it's not.
Well, it's very easy for you to prove I'm wrong: How much would your Apple shares be worth today if Apple had never repurchased the $700 billion in stock they've done so far?
Give me a dollar amount proving the "value returned to you" with the math that got you there. Would shares right now be worth $10 less? $100 less? No change? Step on up son, show us your work. Quantify it.
Your original claim is that share buy backs do not return anything "quantifiable" to investors. Share price is not the only thing "quantifiable", that investors are concern about when investing in a stock.
Now you're saying that If i can't show in actual dollar amount on how much my AAPL shares had increased due to Apple $700B buy backs over ten years, then that is all the proof you need to claim that buy back shares goes ...poof! ...... returning nothing "quantifiable" to the investors.
When Apple reduces the amount of outstanding shares through buy backs, the percent ownership of each remaining shares increases. That is "quantifiable".
When buy backs reduced the number of the outstanding shares to calculate E/S , E/S will increase. That is "quantifiable.
Buy back shares saves Apple billions of dollars in dividend pay out every year. That of "quantifiable".
In 2012,there were less than 1B outstanding shares of AAPL. In 2014 when AAPL split 7-1,there should had been about 7B outstanding shares. In 2020, when Apple split 4-1, there should had been 28B outstanding shares. But because of ten years of buy backs, there's now only 15.3B outstanding shares. A reduction of about 12B shares (or 40%) in outstanding shares. That reduction is now a saving of $12B in annual dividend pay out per year. And using 15.3B instead of 28B, when calculating E/S, is not an insignificant increase in E/S.
Increase ownership per share, increase E/S and saving $12 in operating cost are "quantifiable" return to investors like Buffett. And there are millions of investors that follows Buffett investment strategy.
The numbers here are split adjusted. So the 2012 number has to be divided by 28 to exclude the 7-1 and 4-1 split. So 26.5B outstanding shares in 2012 represent .95B shares at the time. (26.5 / 28 = 9.5). This shows just how many shares Apple had bought back since 2009.
>In Apple’s case, the company has repurchased hundreds of billions in
stock over the last decade and more, and the stock has soared to new
all-time highs year after year. In addition to being driven by a strong
core business and popular products, buybacks have helped boost earnings per share and turned Apple into one of the best long-term investments.<
There are many that claim that buy backs are a scam and you might be one of them. In fact, before 1982, the SEC considered stock buy back a form of stock manipulation and was illegal. The claim was that stock buy backs causes share prices to increase only temporarily by artificially boosting E/S, by decreasing the number of outstanding shares instead of increasing actual earnings. If shares from share buy backs goes ...poof! .... then how can they claim any share price increase is due to buy backs? Did any of these people have to show the math to come up with the "quantifiable" dollar amount to prove that share price had increase due to buy backs? Would you also call BS to their claim because they can't come up with the math to show how much (in dollars) share price had increased due to buy backs? Your thinking seems to be that if one can't show the math that buy backs increases share price in a "quantifiable" way, then any increase never happened due to the buy backs because those shares just went ..... poof!.
It wasn't until the 50's, with the invention of the atomic clock, that we had "quantifiable" proof that Einstein 1905 Theory of Special Relativity (concerning time dilation) do happen. Did that mean that before the 50's, time dilation did not occur because there was no "quantifiable" proof that it did? So why do you think that just because the math can't done to show the actual dollar increase in share price due to buy backs, that it must mean that there is no increase in share price due to buy backs? That makes no sense.
Your original claim is that share buy backs do not return anything "quantifiable" to investors. Share price is not the only thing "quantifiable", that investors are concern about when investing in a stock.
TLDR...
You're describing intangibles. My guess is you don't know what quantifiable value factually means. You should before claiming I'm wrong. Quantifiable value is the kind of hard numbers that show up in a bank account statement, a company P&L report, the amount of your paycheck, etc. You're confusing that with intangible value, the kind of worth that you can't put a number or price tag on very easily.
The quantifiable value in a share of Apple stock is measured in dollars (or other currency). Had Apple distributed it in special dividends it would be...wait for it... Quantifiable. Apple could keep the cash on the books and horde it. Quantifiable. Apple could offer higher pay and benefits to Apple Store employees. That's probably quantifiable value. Apple could set up a foundation attending to needs of the homeless. That might have benefits both quantifiable and intangible.
Those $700Billion dollar spend benefits you wanted to argue about as being "returns to investors"? Solely intangible.
If you still want to argue I'm wrong: How much dollar value would your or Warren Buffet's Apple stock have if Apple had not bought and burned $700 Billion dollars in stock? If that's too hard to nail down to the dollar, give me a percentage range of how much the decade of stock buybacks has contributed to the current Apple stock price. 1-3% 10-20%? Maybe nothing at all other than a temporary blip that rights itself over the short-term? Buffett might have a place for you if you can figure it out.
Comments
Well, it's very easy for you to prove I'm wrong: How much would your Apple shares be worth today if Apple had never repurchased the $700 billion in stock they've done so far?
Give me a dollar amount proving the "value returned to you" with the math that got you there. Would shares right now be worth $10 less? $100 less? No change?
Step on up son, show us your work. Quantify it.
Quantifiable value is the kind of hard numbers that show up in a bank account statement, a company P&L report, the amount of your paycheck, etc. You're confusing that with intangible value, the kind of worth that you can't put a number or price tag on very easily.
The quantifiable value in a share of Apple stock is measured in dollars (or other currency). Had Apple distributed it in special dividends it would be...wait for it...
Quantifiable.
Apple could keep the cash on the books and horde it. Quantifiable.
Apple could offer higher pay and benefits to Apple Store employees. That's probably quantifiable value.
Apple could set up a foundation attending to needs of the homeless. That might have benefits both quantifiable and intangible.
Those $700Billion dollar spend benefits you wanted to argue about as being "returns to investors"? Solely intangible.
If you still want to argue I'm wrong:
How much dollar value would your or Warren Buffet's Apple stock have if Apple had not bought and burned $700 Billion dollars in stock? If that's too hard to nail down to the dollar, give me a percentage range of how much the decade of stock buybacks has contributed to the current Apple stock price. 1-3% 10-20%? Maybe nothing at all other than a temporary blip that rights itself over the short-term? Buffett might have a place for you if you can figure it out.
Quantify it.