Apple predicted to increase quarterly dividend up to 10%, share buybacks up to $50B

AppleInsider · March 4, 2016 2:06PM

Apple will revisit its capital return program in April, and investment firm Piper Jaffray believes the company will use the opportunity to increase both its quarterly dividend payout and share buyback allotment.

Analyst Gene Munster noted this week that in the last two years, Apple increased its dividend by 8 and 11 percent, so he expects the iPhone maker to stay consistent for 2016, anywhere from 5 to 10 percent.

He also believes Apple will add between $30 billion and $50 billion to its share repurchase program, again based on moves the company has made in the last two years. He sees this generating an incremental 5 percent earnings-per-share growth, excluding revenue, in each of the next two years.

In April of 2014, Apple increased its dividend 8 percent to 47 cents per share, while also adding $30 billion to its repurchase program. Then in April 2015, the dividend grew 11 percent to 52 cents per share, while the repurchase program added $50 billion, bringing its total to $140 billion.

As of this January, Apple had $30 billion left on its current share repurchase authorization. It spent $6 billion in the December 2015 quarter alone on share repurchases.

Apple first launched its capital return program in 2012 and has revisited it every year in April. In addition to quarterly dividends, it has sold bonds across the world, raising debt to repurchase its own shares.

The capital return program was initiated as a way for Apple to utilize its massive cash hoard, which has continued to grow even with share buybacks and quarterly dividends. As of last quarter, Apple had nearly $216 billion in cash, most of it held overseas.

torusoft · March 4, 2016 2:24PM

Just slightly at odds with its stock being traded like a junk bond, no?

mr. h · March 4, 2016 2:30PM

Presumably, had Apple not been doing all these buybacks, the stock price would be even lower now? This notwithstanding, surely long-term investors would be better off if Apple spent all the capital return money on dividends?

Hoarding wealth is not necessary for Apple at this point - they have massive reserves and are making money faster than they can spend it. Returning money to investors is the right thing to do in this situation but I’m not sure the buyback is good value for money.

josu · March 4, 2016 2:47PM

I want 0,60 per share. Is a practical issue, my government takes 20% of what is left after yours take a 15% so I want to get 1.000€ net consistently even if there are some swings in exchange rates. In theory, I can claim US government the tax, but in real terms, unless I was getting several times more money per quarter the bank fees takes all the money.

With 0,60 I have certain security that my 1.000€ net could be a reality. With 0,52 I have been getting little bit over 900€ three of the last four quarters, except the last one that the dollar has started to slide again against the Euro.

quazze · March 4, 2016 2:58PM

Although $216 billion in cash is amazingly awesome, Apple has also accumulated an increasing amount of debt. Does anyone have that [debt] figure?

rob53 · March 4, 2016 3:00PM

The headline caused a double take. It read like Apple was going to increase the dividend TO 10% not just increase it 10%. Adding another 10% to the dividend is nice but the dividend isn't that high to begin with especially if it were to climb anywhere between 5 and 10% of AAPL's stock value.

luxuriant · March 4, 2016 3:04PM

josu said:

I want 0,60 per share. Is a practical issue, my government takes 20% of what is left after yours take a 15% so I want to get 1.000€ net consistently even if there are some swings in exchange rates. In theory, I can claim US government the tax, but in real terms, unless I was getting several times more money per quarter the bank fees takes all the money.

It might be better for you to buy some of the debt (securities) that Apple sells outside the US in order to finance share repurchases next time they issue bonds denominated in Euros. Actually, you'd probably have to buy into some fund that buys the securities: I don't think they're traded retail.

Soli · March 4, 2016 3:20PM

mr. h said:

Presumably, had Apple not been doing all these buybacks, the stock price would be even lower now? This notwithstanding, surely long-term investors would be better off if Apple spent all the capital return money on dividends?

Hoarding wealth is not necessary for Apple at this point - they have massive reserves and are making money faster than they can spend it. Returning money to investors is the right thing to do in this situation but I’m not sure the buyback is good value for money.

With the majority of that cash overseas and not usable without being moved and subject to the maximum tax rate, their reserves aren't that massive. For example, if Apple wanted to acquire Charter, NBC, Netflix, Amazon, Ford, Volkswagen, etc., they would have to borrow money in order to make that happen with the lowest possible cost for a given country. That said, I like the buybacks reducing the number of shares available, over simply increasing the dividend payout.

5150iii · March 4, 2016 3:57PM

I wonder what their internal goal is for the buyback? Also with the dividend they could certainly afford to really push it higher but then that sets a bad "precedent". If the buyback is closer to the end than the case can be made for moving towards a really nice dividend in the next few years. I'm confident that they will do the best thing as the CR program evolves.

mcarling · March 4, 2016 4:16PM

My guess is that the new dividend probably will be $0.57 per share.

gmgravytrain · March 4, 2016 4:38PM

I'll happily take the dividend increase because I'm not seeing much in the way of share gains. Another $.05 per share every quarter is better than nothing. I'm not crazy over the buybacks but I understand Apple wants to reduce the number of shares in order to give larger dividend increases over time. It's good Apple has plenty of cash but also unfortunate most of it is trapped overseas. It's unlikely there will be any overseas tax repatriation holidays in the near future, so that money might as well be on the moon. . . I don't want to see Apple throwing cash away and I don't really know what they can do with that cash that will get them back Wall Street's respect. Simply coming out with newer iPhones every so often doesn't seem like much of a plan to win over investor confidence. I'll just have to take whatever Apple offers and pray they know what they're doing. It pains me to see Apple with a P/E of 11 and Microsoft with a P/E of 37. It's just crazy how certain stocks are being valued. Apple appears to be doing everything right but share gains are still quite small when compared to rival tech companies.

5150iii · March 4, 2016 4:44PM

mcarling said:

My guess is that the new dividend probably will be $0.57 per share.

My guess is .59

5150iii · March 4, 2016 4:51PM

FWIW, the last week has been pretty positive stock wise. It's crossed over the $100 mark which has been a hard ceiling for awhile now. I sure hope it continues and I believe that it will go higher as these quarters come and go and we see the reach of the new 4" phone and maybe a gen2 AW.

michael_c · March 4, 2016 5:04PM

sog35 said:

mr. h said:

Presumably, had Apple not been doing all these buybacks, the stock price would be even lower now? This notwithstanding, surely long-term investors would be better off if Apple spent all the capital return money on dividends?

Hoarding wealth is not necessary for Apple at this point - they have massive reserves and are making money faster than they can spend it. Returning money to investors is the right thing to do in this situation but I’m not sure the buyback is good value for money.

I don't think the stock would be worth less today if they didn't do the buyback.

They would have over $300 billion in net cash if they didn't do the buyback.

Sans cash the company's market cap would only be $264 billion. Do you seriously think Apple would be worth less net of cash than Facebook, which is worth $300 billion? I don't think so.

IMO, Apple should hoard the cash right now. If the economy gets worse they can buy and acquire foreign and domestic companies for cheap.

Part of the pressure on AAPL stock price is due to large institutions view that AAPL is shifting from a growth stock to a value stock, and the growth funds have been selling at a higher rate than the value funds are adding positions. I still see AAPL in the growth phase, as the 2015 holiday quarter and following quarter iPhone sales were an anomaly and should have been treated as outlier data points - but, it doesn't matter what I, or you think as they will do what they will do. However, at some point they will have such large YOY comps to deal with AAPL will no longer fit any of the institution's growth funds definitions and their rules will force them to sell. It is what it is, regardless of whether the institutions have pulled the trigger early or not. But, at some point the buy/sell rates will equalize, and the buybacks effects will be seen. At this point, any positive effects of the buybacks have been obscured by the transition. Look at the reported activity for the Fidelity funds and you can see the imbalance buy/sell pressure. And, Fidelity is just one of the institutions transitioning. Fidelity Capital Appreciation fund sold all of its 2.48 million Apple shares since June while at the same time Fidelity Series Equity-Income fund bought 1.05 million shares (after having no previous stake) When you look at the 20 year view of AAPL, you see the latest drop (over the last 9+ months) as a 50% retracement - this has occurred multiple times with AAPL. AAPL appears to have bottomed out in Feb, and in the past have resumed their trajectory either one or two month after they have bottomed. Unexpected events can change things, but I have no reason to expect this retracement to be any different.

michael_c · March 4, 2016 5:04PM

sog35 said:

mr. h said:

Presumably, had Apple not been doing all these buybacks, the stock price would be even lower now? This notwithstanding, surely long-term investors would be better off if Apple spent all the capital return money on dividends?

Hoarding wealth is not necessary for Apple at this point - they have massive reserves and are making money faster than they can spend it. Returning money to investors is the right thing to do in this situation but I’m not sure the buyback is good value for money.

I don't think the stock would be worth less today if they didn't do the buyback.

They would have over $300 billion in net cash if they didn't do the buyback.

Sans cash the company's market cap would only be $264 billion. Do you seriously think Apple would be worth less net of cash than Facebook, which is worth $300 billion? I don't think so.

IMO, Apple should hoard the cash right now. If the economy gets worse they can buy and acquire foreign and domestic companies for cheap.

Part of the pressure on AAPL stock price is due to large institutions view that AAPL is shifting from a growth stock to a value stock, and the growth funds have been selling at a higher rate than the value funds are adding positions. I still see AAPL in the growth phase, as the 2015 holiday quarter and following quarter iPhone sales were an anomaly and should have been treated as outlier data points - but, it doesn't matter what I, or you think as they will do what they will do. However, at some point they will have such large YOY comps to deal with AAPL will no longer fit any of the institution's growth funds definitions and their rules will force them to sell. It is what it is, regardless of whether the institutions have pulled the trigger early or not. But, at some point the buy/sell rates will equalize, and the buybacks effects will be seen. At this point, any positive effects of the buybacks have been obscured by the transition. Look at the reported activity for the Fidelity funds and you can see the imbalance buy/sell pressure. And, Fidelity is just one of the institutions transitioning. Fidelity Capital Appreciation fund sold all of its 2.48 million Apple shares since June while at the same time Fidelity Series Equity-Income fund bought 1.05 million shares (after having no previous stake) When you look at the 20 year view of AAPL, you see the latest drop (over the last 9+ months) as a 50% retracement - this has occurred multiple times with AAPL. AAPL appears to have bottomed out in Feb, and in the past have resumed their trajectory either one or two month after they have bottomed. Unexpected events can change things, but I have no reason to expect this retracement to be any different.

potatoleeksoup · March 4, 2016 6:02PM

Up *by* 5-10%, not "up to 5-10%", right? Prepositions matter, unless this was intended as clickbait. The dividend is currently around 2%.

plovell · March 4, 2016 6:04PM

sog35 said:

mr. h said:

IMO, Apple should hoard the cash right now. If the economy gets worse they can buy and acquire foreign and domestic companies for cheap.

True, but Apple hasn't been finding many attractive targets so the pile has just been growing.

And if it keeps growing then Apple becomes a target for vultures. The way to prevent that is to buy back some stock (which reduces the supply and makes it more valuable) and pay a bigger dividend (which makes the return more attractive and therefore increases the price). A higher price means that the valuation goes up, reducing the attraction as a takeover target. What Apple is saying here is that the best investment it can make ... is in itself.

linkman · March 4, 2016 6:18PM

I don't see Apple increasing its buyback program in the near future. If they didn't gobble up a bunch of shares when it hit $92.00 then they aren't put extra funds into it.

josu · March 4, 2016 6:46PM

luxuriant said:

josu said:

I want 0,60 per share. Is a practical issue, my government takes 20% of what is left after yours take a 15% so I want to get 1.000€ net consistently even if there are some swings in exchange rates. In theory, I can claim US government the tax, but in real terms, unless I was getting several times more money per quarter the bank fees takes all the money.

It might be better for you to buy some of the debt (securities) that Apple sells outside the US in order to finance share repurchases next time they issue bonds denominated in Euros. Actually, you'd probably have to buy into some fund that buys the securities: I don't think they're traded retail.

Thanks for the advice, I will not follow it, debt is not my trade of choice, but thanks.

josu · March 4, 2016 6:47PM

sog35 said:

Soli said:

With the majority of that cash overseas and not usable without being moved and subject to the maximum tax rate, their reserves aren't that massive. For example, if Apple wanted to acquire Charter, NBC, Netflix, Amazon, Ford, Volkswagen, etc., they would have to borrow money in order to make that happen with the lowest possible cost for a given country. That said, I like the buybacks reducing the number of shares available, over simply increasing the dividend payout.

Not really.

If Apple uses its cash to buy foreign companies that cash won't be taxed in the USA.

Also if Apple already paid 10-20% foreign tax on some cash they would only need to pay 15-25% tax to the USA. Any tax paid to foreign countries is credited when Apple brings the cash back to the USA. I doubt that 100% of the foreign cash was tax free in foreign countries. I think they paid at least 10-15% taxes on that cash already.

You are right, and given the current trend here in the EU it will be more and more that way in the future.

josu · March 4, 2016 6:50PM

mcarling said:

My guess is that the new dividend probably will be $0.57 per share.

Easy guess, ten percent more is around 0.052 more, the usual rounding below five is to less so 0,05 more, next time it would be 0,06. So this year 0,57, next 0,63

Apple predicted to increase quarterly dividend up to 10%, share buybacks up to $50B

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