Dividends are a taxable event to shareholders. Buybacks are not.
Apple more than anyone on the entire planet knows exactly what the fair value of the company is. I have full trust in there timing for making buybacks. They alone know whats in the pipeline for the next 5 years and we dont.
That's a clueless statement. The aggregate tax consequence (under the current tax law) of spending $39 billion -- assuming the same holding period -- is identical between a repurchase and a dividend. (The clientele may not be the same.) Indeed, if someone taking cash for stock in a repurchase had bought the shares less than a year prior, they would pay taxes at the current (not capital gains) rate, thereby incurring a potentially higher tax bill.
All this time, I actually thought that you knew what you were talking about on matters of finance. Sigh.
Quote:
Originally Posted by sog35
Go research buybacks if you dont understand.
See what Warren Buffet told Steve Jobs years ago.
I know the research on buybacks very well. And the evidence amounts to far more than "what Warren Buffet told Steve Jobs" (what was it that he said about repurchases, btw?).
I suggest -- fwiw -- that you should be the one to do some research.
They purchased them at an average price of about $68
How would buying back at $97 be a 30% discount? Do you not think there's a difference between buying back at $97 versus $68?!
As an aside, I am huge fan of -- and have argued for well over a year, in these forums -- Apple share buybacks. But at a reasonable price. You're welcome to go back and check. I am simply raising some questions, with appropriately worded caveats, about whether it makes sense at $97.
Perhaps you should go back and read my original post again, because you seem to have misunderstood.
That's a clueless statement. The aggregate tax consequence (under the current tax law) of spending $39 billion -- assuming the same holding period -- is identical between a repurchase and a dividend. (The clientele may not be the same.) Indeed, if someone taking cash for stock in a repurchase had bought the shares less than a year prior, they would pay taxes at the current (not capital gains) rate, thereby incurring a potentially higher tax bill.
All this time, I actually thought that you knew what you were talking about on matters of finance. Sigh.
I know the research on buybacks very well. And the evidence amounts to far more than "what Warren Buffet told Steve Jobs" (what was it that he said about repurchases, btw?).
I suggest -- fwiw -- that you should be the one to do some research.
(Edited slightly).
Who worries about the tax consequences of the idiots who sold the shares the company bought back? That's ridiculous. If you want to sell shares you held less than a year it doesn't matter whether Apple was the buyer or I was. What the seller of bought back shares has to pay in taxes is immaterial to this conversation. It's the tax consequences to ongoing holders of shares that we speak of when we talk about the tax efficiency of a buy back versus a cash dividend.
And what Warren Buffett said to Steve Jobs was that he should buy back shares only if he felt they were undervalued. If Apple feels that its valuation in subsequent years will be sufficiently higher that the shares represent a bargain at current prices, with some margin of error should the future not unfold precisely as expected, then it makes sense from an investment standpoint to buy back shares. And if the dividends paid on shares represent a higher cost than the return the company receives on cash that it's holding, then it makes sense to buy back (I.e., retire) shares from a capital allocation standpoint.
Who worries about the tax consequences of the idiots who sold the shares the company bought back? That's ridiculous. If you want to sell shares you held less than a year it doesn't matter whether Apple was the buyer or I was. What the seller of bought back shares has to pay in taxes is immaterial to this conversation. It's the tax consequences to ongoing holders of shares that we speak of when we talk about the tax efficiency of a buy back versus a cash dividend.
If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).
Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.
If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).
Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.
You're obviously missing the point of those arguing (correctly) that the tax consequences for AAPL investors of a stock buyback and a dividend are different. Let's look at the two alternate scenarios considering the impact on someone with 1000 shares who sells 200 of them.
In case 1 (the stock buy back scenario). The investor sold 200 shares at price X and now holds 800 shares are a price higher than it would have been. He pays taxes this year on the 200 shares he sold. (Of course the sale had nothing to do with Apple's decision.)
In case 2 (the dividend scenario). The investor sold 200 shares at price X and now holds 800 shares and a price lower than scenario 1. But he also gets a cash dividend based on his 800 shares. He pays taxes this year on the 200 shares AND on the special dividend.
The taxes he pays on the 200 shares he sold is exactly the same in both cases, so we can ignore that. So the difference comes down to the fact that in scenario 1 the gain from Apple's buy back is 100% tax deferred whereas the gain in scenario 2 is taxed immediately. So it's false to say that "because the tax rates for dividends and capital gains are equal that the tax implications are the same." While the rates are the same, the timing of the taxation is quite relevant. It's a basic truism in finance that paying X dollars in taxes some time in the future is preferred to paying X dollars today (except in a regime of negative real interest rates, but then things get really wonky).
If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).
Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.
You have a tenuous grasp, if any grasp at all, on logic and you clearly know little of what you speak. How does the greater fool theory even come into play in this conversation? It doesn't. That's a concept applicable to stocks like AMZN or CYNK. You're clearly beyond your depth.
You're obviously missing the point of those arguing (correctly) that the tax consequences for AAPL investors of a stock buyback and a dividend are different. Let's look at the two alternate scenarios considering the impact on someone with 1000 shares who sells 200 of them.
In case 1 (the stock buy back scenario). The investor sold 200 shares at price X and now holds 800 shares are a price higher than it would have been. He pays taxes this year on the 200 shares he sold. (Of course the sale had nothing to do with Apple's decision.)
In case 2 (the dividend scenario). The investor sold 200 shares at price X and now holds 800 shares and a price lower than scenario 1. But he also gets a cash dividend based on his 800 shares. He pays taxes this year on the 200 shares AND on the special dividend.
The taxes he pays on the 200 shares he sold is exactly the same in both cases, so we can ignore that. So the difference comes down to the fact that in scenario 1 the gain from Apple's buy back is 100% tax deferred whereas the gain in scenario 2 is taxed immediately. So it's false to say that "because the tax rates for dividends and capital gains are equal that the tax implications are the same." While the rates are the same, the timing of the taxation is quite relevant. It's a basic truism in finance that paying X dollars in taxes some time in the future is preferred to paying X dollars today (except in a regime of negative real interest rates, but then things get really wonky).
Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.
Your point about the timing of tax payments is well taken.
Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.
Your point about the timing of tax payments is well taken.
My language/example was a little sloppy, admittedly. Stock buybacks happen on top of a dynamic market. The effect of a stock-buy back should have a positive effect ceteris paribus ("holding all other things constant," for those of you years away from Economics 101), but observed during a falling market the stock price could still be negative. The logic is that if we observe that AAPL fell $20 during a 3-month period that included a massive buy-back, many would say that "it would have fallen a lot more if it hadn't been for the buyback" (and I would agree with that). But my primary point was about the tax implications, not strictly about the direct affects of a buy back.
Stock Repurchase strategies also provide some added financial flexibility; with $39B available, Apple has a pretty sure shot of beating EPS estimates next quarter.
That's a ridiculous amount of money, they have nearly spent as much in buybacks this year as Google has recorded in total revenue over the same period.
It's amazing to operate with that kind of cash apparatus...
We'll have a beer then, because I'll be there too with my 7000 shares in tow.
Holy cow, TMI, literally! I had 65 shares before the split. Sold 100 about four years ago at about $300 to pay for a kitchen remodel. Still sitting on about $30K after cost.
Why that's a bad idea: You can't time the market. Yes, you might get more "bang per buck", but there's nothing that says the market won't suddenly take a nosedive for any number of reasons.
Also, it creates a "hump" in the valuation that's bound to create volatility, from a hysteresis effect if nothing else. Good for options freaks, not good for long term holders like me. It was all right to do that when AAPL was beaten senseless by shorts and down around $400/share. It was even all right when the shorts started trying to pull AAPL down under $500/share. But what's best for longs is a nice, steady re-inflation of the valuation of AAPL.
In the meantime, we're getting decent dividends, which has helped take the sting out of the lousy valuation.
Yes, lousy valuation. Apple should be up around a P/E of 20, not down almost to 15. It's got too much on the ball to be valued at half of Google.
I'd like to know what is the exact reason why Apple's valuation is as low as it is. I'm guessing there's no formula to figure that out but does it have something to do with the business they're in, the fact that only the iPhone is making so much money for them or is it something like investors simply don't trust Tim Cook's judgment of running the company properly? I'd find it very hard to believe investors look at Apple products and say they're not good enough for consumers to buy. Why is even Microsoft receiving a higher P/E than Apple when this is supposed to be the post-PC era. Forget Google, that company's P/E is off the charts when compared to Apple. I'm wondering if Apple will never find a way to fix the compressing P/E problem. It seems like Apple has done everything possible to expand the P/E but it's possible that it's just growing slowly. There are of course analysts who still give rather low ratings to the stock, so they must see some sort of problem.
I'm always hoping that if Apple gets into some potentially huge business such as mobile payments, Wall Street might decide to give Apple some decent valuation. Maybe Apple has attracted the wrong type of investors over the years who don't necessarily like the company and only put in money when things are going good for Apple but flee at the slightest scare. They're definitely not the Google-type investors who continue to pour money into the company no matter what.
Comments
Dividends are a taxable event to shareholders. Buybacks are not.
Apple more than anyone on the entire planet knows exactly what the fair value of the company is. I have full trust in there timing for making buybacks. They alone know whats in the pipeline for the next 5 years and we dont.
That's a clueless statement. The aggregate tax consequence (under the current tax law) of spending $39 billion -- assuming the same holding period -- is identical between a repurchase and a dividend. (The clientele may not be the same.) Indeed, if someone taking cash for stock in a repurchase had bought the shares less than a year prior, they would pay taxes at the current (not capital gains) rate, thereby incurring a potentially higher tax bill.
All this time, I actually thought that you knew what you were talking about on matters of finance. Sigh.
Go research buybacks if you dont understand.
See what Warren Buffet told Steve Jobs years ago.
I know the research on buybacks very well. And the evidence amounts to far more than "what Warren Buffet told Steve Jobs" (what was it that he said about repurchases, btw?).
I suggest -- fwiw -- that you should be the one to do some research.
(Edited slightly).
I was talking about the tax consequences to the shareholder.
So was I.
Seriously, do you think that someone selling their shares back to Apple at a profit does not pay taxes?
If you dont see the benefit of apple buying back shares at a 30% discount I cant help you.
Um... what "30% discount"? Where did you get that?
The shares are now $97
They purchased them at an average price of about $68
How would buying back at $97 be a 30% discount? Do you not think there's a difference between buying back at $97 versus $68?!
As an aside, I am huge fan of -- and have argued for well over a year, in these forums -- Apple share buybacks. But at a reasonable price. You're welcome to go back and check. I am simply raising some questions, with appropriately worded caveats, about whether it makes sense at $97.
We'll have a beer then, because I'll be there too with my 7000 shares in tow.
Term. Acquired
Short 06/20/2014 100.000 $97.671 $0.641 $9,767.10 $64.10 0.66% +$619.16 +6.77% $91.48 $9,147.94
Short 06/10/2014 100.000 $97.671 $0.641 $9,767.10 $64.10 0.66% +$399.14 +4.26% $93.68 $9,367.96
Short 05/30/2014 14.000 $97.671 $0.641 $1,367.39 $8.97 0.66% +$93.54 +7.34% $90.99 $1,273.85
Short 05/30/2014 266.000 $97.671 $0.641 $25,980.48 $170.50 0.66% +$1,926.87 +8.01% $90.43 $24,053.62
Short 04/24/2014 420.000 $97.671 $0.641 $41,021.82 $269.22 0.66% +$7,047.87 +20.74% $80.89 $33,973.95
Short 04/21/2014 350.000 $97.671 $0.641 $34,184.85 $224.35 0.66% +$7,891.90 +30.02% $75.12 $26,292.95
Short 04/17/2014 350.000 $97.671 $0.641 $34,184.85 $224.35 0.66% +$7,926.90 +30.19% $75.02 $26,257.95
Short 01/22/2014 70.000 $97.671 $0.641 $6,836.97 $44.87 0.66% +$1,315.52 +23.83% $78.88 $5,521.45
Short 01/09/2014 70.000 $97.671 $0.641 $6,836.97 $44.87 0.66% +$1,463.02 +27.22% $76.77 $5,373.95
Short 12/27/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$3,083.23 +22.01% $80.05 $14,009.20
Short 12/26/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$2,959.98 +20.94% $80.76 $14,132.45
Short 12/24/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$2,836.98 +19.90% $81.46 $14,255.45
Short 12/20/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$3,374.48 +24.60% $78.39 $13,717.95
Short 10/29/2013 700.000 $97.671 $0.641 $68,369.70 $448.70 0.66% +$16,164.76 +30.96% $74.58 $52,204.94
Short 09/11/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$5,433.93 +46.61% $66.62 $11,658.50
Short 09/11/2013 525.000 $97.671 $0.641 $51,277.27 $336.52 0.66% +$16,299.53 +46.60% $66.62 $34,977.75
Short 09/11/2013 700.000 $97.671 $0.641 $68,369.70 $448.70 0.66% +$21,731.75 +46.60% $66.63 $46,637.95
Short 07/26/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$6,059.48 +54.92% $63.05 $11,032.95
Long 07/11/2013 700.000 $97.671 $0.641 $68,369.70 $448.70 0.66% +$25,961.75 +61.22% $60.58 $42,407.95
Long 01/18/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$4,599.48 +36.82% $71.39 $12,492.95
Long 01/17/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$4,497.48 +35.71% $71.97 $12,594.95
Long 01/15/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$4,824.48 +39.33% $70.10 $12,267.95
Long 01/11/2013 175.000 $97.671 $0.641 $17,092.42 $112.17 0.66% +$4,078.50 +31.34% $74.37 $13,013.93
Long 12/13/2011 385.000 $97.671 $0.641 $37,603.33 $246.78 0.66% +$16,241.36 +76.03% $55.49 $21,361.97
Term Acquired
Short 06/23/2014 17.000 $97.671 $0.641 $1,660.40 $10.89 0.66% +$108.35 +6.98% $91.30 $1,552.06
Short 05/15/2014 77.000 $97.671 $0.641 $7,520.66 $49.35 0.66% +$1,028.22 +15.84% $84.32 $6,492.45
Short 05/09/2014 56.000 $97.671 $0.641 $5,469.57 $35.89 0.66% +$802.83 +17.20% $83.33 $4,666.75
Short 09/25/2013 154.000 $97.671 $0.641 $15,041.33 $98.71 0.66% +$4,414.86 +41.55% $69.00 $10,626.47
Long 10/10/2012 196.000 $97.671 $0.641 $19,143.51 $125.63 0.66% +$1,209.41 +6.74% $91.50 $17,934.11
What a crock of sh**!
If you're buying back your own goddamn stock them what the hell are the markets for.
But we all know that market speak is BS!
Stock buy back is a legal loop hole that allows companies to embezzle their company's bank accounts.
I don't even know what to say about this. You should read more about how the stock market works.
Who worries about the tax consequences of the idiots who sold the shares the company bought back? That's ridiculous. If you want to sell shares you held less than a year it doesn't matter whether Apple was the buyer or I was. What the seller of bought back shares has to pay in taxes is immaterial to this conversation. It's the tax consequences to ongoing holders of shares that we speak of when we talk about the tax efficiency of a buy back versus a cash dividend.
And what Warren Buffett said to Steve Jobs was that he should buy back shares only if he felt they were undervalued. If Apple feels that its valuation in subsequent years will be sufficiently higher that the shares represent a bargain at current prices, with some margin of error should the future not unfold precisely as expected, then it makes sense from an investment standpoint to buy back shares. And if the dividends paid on shares represent a higher cost than the return the company receives on cash that it's holding, then it makes sense to buy back (I.e., retire) shares from a capital allocation standpoint.
If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).
Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.
If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).
Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.
You're obviously missing the point of those arguing (correctly) that the tax consequences for AAPL investors of a stock buyback and a dividend are different. Let's look at the two alternate scenarios considering the impact on someone with 1000 shares who sells 200 of them.
In case 1 (the stock buy back scenario). The investor sold 200 shares at price X and now holds 800 shares are a price higher than it would have been. He pays taxes this year on the 200 shares he sold. (Of course the sale had nothing to do with Apple's decision.)
In case 2 (the dividend scenario). The investor sold 200 shares at price X and now holds 800 shares and a price lower than scenario 1. But he also gets a cash dividend based on his 800 shares. He pays taxes this year on the 200 shares AND on the special dividend.
The taxes he pays on the 200 shares he sold is exactly the same in both cases, so we can ignore that. So the difference comes down to the fact that in scenario 1 the gain from Apple's buy back is 100% tax deferred whereas the gain in scenario 2 is taxed immediately. So it's false to say that "because the tax rates for dividends and capital gains are equal that the tax implications are the same." While the rates are the same, the timing of the taxation is quite relevant. It's a basic truism in finance that paying X dollars in taxes some time in the future is preferred to paying X dollars today (except in a regime of negative real interest rates, but then things get really wonky).
You have a tenuous grasp, if any grasp at all, on logic and you clearly know little of what you speak. How does the greater fool theory even come into play in this conversation? It doesn't. That's a concept applicable to stocks like AMZN or CYNK. You're clearly beyond your depth.
Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.
Your point about the timing of tax payments is well taken.
Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.
Your point about the timing of tax payments is well taken.
My language/example was a little sloppy, admittedly. Stock buybacks happen on top of a dynamic market. The effect of a stock-buy back should have a positive effect ceteris paribus ("holding all other things constant," for those of you years away from Economics 101), but observed during a falling market the stock price could still be negative. The logic is that if we observe that AAPL fell $20 during a 3-month period that included a massive buy-back, many would say that "it would have fallen a lot more if it hadn't been for the buyback" (and I would agree with that). But my primary point was about the tax implications, not strictly about the direct affects of a buy back.
That's a ridiculous amount of money, they have nearly spent as much in buybacks this year as Google has recorded in total revenue over the same period.
It's amazing to operate with that kind of cash apparatus...
No, the wife and I will be there too ...
Why that's a bad idea: You can't time the market. Yes, you might get more "bang per buck", but there's nothing that says the market won't suddenly take a nosedive for any number of reasons.
Also, it creates a "hump" in the valuation that's bound to create volatility, from a hysteresis effect if nothing else. Good for options freaks, not good for long term holders like me. It was all right to do that when AAPL was beaten senseless by shorts and down around $400/share. It was even all right when the shorts started trying to pull AAPL down under $500/share. But what's best for longs is a nice, steady re-inflation of the valuation of AAPL.
In the meantime, we're getting decent dividends, which has helped take the sting out of the lousy valuation.
Yes, lousy valuation. Apple should be up around a P/E of 20, not down almost to 15. It's got too much on the ball to be valued at half of Google.
I'd like to know what is the exact reason why Apple's valuation is as low as it is. I'm guessing there's no formula to figure that out but does it have something to do with the business they're in, the fact that only the iPhone is making so much money for them or is it something like investors simply don't trust Tim Cook's judgment of running the company properly? I'd find it very hard to believe investors look at Apple products and say they're not good enough for consumers to buy. Why is even Microsoft receiving a higher P/E than Apple when this is supposed to be the post-PC era. Forget Google, that company's P/E is off the charts when compared to Apple. I'm wondering if Apple will never find a way to fix the compressing P/E problem. It seems like Apple has done everything possible to expand the P/E but it's possible that it's just growing slowly. There are of course analysts who still give rather low ratings to the stock, so they must see some sort of problem.
I'm always hoping that if Apple gets into some potentially huge business such as mobile payments, Wall Street might decide to give Apple some decent valuation. Maybe Apple has attracted the wrong type of investors over the years who don't necessarily like the company and only put in money when things are going good for Apple but flee at the slightest scare. They're definitely not the Google-type investors who continue to pour money into the company no matter what.
To be simple and honest about it, your post makes no sense.
(Edited)
It makes perfect sense to me, a special dividend is a bad idea - great for shareholders but do nothing to help the Apple shares.