Raise in Apple's dividend and $35B share buyback program extension predicted
Apple will be accelerating how it passes some of its giant cash hoard to investors, according to analysts at Wells Fargo, with the iPhone producer expected to offer a dividend increase and raise how many shares it buys back, though not by as much as it has in previous years
Apple is set to announce its quarterly earnings for the second fiscal quarter of 2019 on April 30, and analysts are speculating on what could be announced in the filing and the following conference call with company executives. In the view of Wells Fargo, Apple will be providing more cash to investors from the significant sum it repatriated to the United States.
In a note to investors seen by AppleInsider, Wells Fargo analyst Aaron Rakers believes Apple will provide an update to its capital return program, as it has done for the last seven years. After repurchasing $48.68 billion in stock and paying out $10.75 billion in dividends, Apple's net cash is thought to be around $129.6 billion at the end of the quarter.
For 2019, it is thought the share repurchase authorization will be around $35 billion. While considerable to most companies, this is relatively low compared to 2018, where Apple authorized buybacks worth $100 billion, but it is similar in size to those offered in 2016 and 2017.
Using historical data, Wells Fargo also anticipates an increase in share dividend of around 10%.
Citing a "struggle to look past" weak iPhone demand data points, Wells Fargo offers a cautious stance for the quarterly results, reducing its estimates to $56.6 billion in revenue from $58.3 billion, and an earnings per share of $2.38, down from $2.45. The firm maintains a "perform" rating for Apple's shares, and a price target of $190.
Apple is set to announce its quarterly earnings for the second fiscal quarter of 2019 on April 30, and analysts are speculating on what could be announced in the filing and the following conference call with company executives. In the view of Wells Fargo, Apple will be providing more cash to investors from the significant sum it repatriated to the United States.
In a note to investors seen by AppleInsider, Wells Fargo analyst Aaron Rakers believes Apple will provide an update to its capital return program, as it has done for the last seven years. After repurchasing $48.68 billion in stock and paying out $10.75 billion in dividends, Apple's net cash is thought to be around $129.6 billion at the end of the quarter.
For 2019, it is thought the share repurchase authorization will be around $35 billion. While considerable to most companies, this is relatively low compared to 2018, where Apple authorized buybacks worth $100 billion, but it is similar in size to those offered in 2016 and 2017.
Using historical data, Wells Fargo also anticipates an increase in share dividend of around 10%.
Citing a "struggle to look past" weak iPhone demand data points, Wells Fargo offers a cautious stance for the quarterly results, reducing its estimates to $56.6 billion in revenue from $58.3 billion, and an earnings per share of $2.38, down from $2.45. The firm maintains a "perform" rating for Apple's shares, and a price target of $190.
Comments
That's pretty much how most American companies did it back in the day when American industry was growing instead of shrinking.
Kidding aside, I choose to get the cash. Since it's taxable either way and my portfolio is already too heavily weighed by AAPL. I do not need to add any more shares of AAPL. Now if they didn't tax dividend used to buy more shares, I would jump at that in an instant.
Buybacks are not the same as burning money. Every quarter, Apple reports the outstanding share count, at last report down almost 2 B shares from it’s peak to about 4.7 B. A share represents a percentage of ownership of Apple. Ergo, removing shares increases the percentage ownership of each remaining share.
Think if them as slices of Apple pie. Note that, with massive buybacks, even if the pie stopped growing (it hasn’t), the size of each slice would still increase. If Apple bought back all but one share, the holder of that one share would own 100% of a company that earns a net profit of more than $50 B/year.
And then there’s the ice cream on the top of the Apple pie: When Apple is undervalued, as it continually has been since the Great Recession, then Apple is able to buy back it’s stock on the cheap. Because of that increased buyback per buck spent, these shares represent an incredible value to the long term investor.
Why is Apple undervalued? Because for a decade now, folks have been doubting Apple’s ability to keep growing (remember the “law of large numbers” nonsense?).
Oh, and finally, the value Apple gives back to the investor with buybacks isn’t taxed. Dividends are.
Hopefully, this dispels the misconception that Apple’s buyback is some kind of gimmick. Take it from this well-rewarded long term investor; it isn’t a gimmick. It’s the real deal.
>>Simply put, buybacks allow companies to distribute money to the shareholders. Another way of doing that is through dividends.
“And presumably, American business should distribute money to its owners, occasionally. And we do it through buybacks. We've done some. And we don't do it through dividends. But most companies do it through having a dividend policy.”
The bottom line is if companies have met the needs of the business and the stock is underpriced then buybacks make “nothing but sense,” Buffett said.<<
As a long term investor in AAPL, if it's good enough for Warren, it good enough for me.
Buybacks are not of any value to shareholders unless the value per share of the company subsequently rises, either because the company was previously undervalued or because it it improves its profit position. If the stock price goes down then the buyback has very much burnt money.
I think Apple are probably right to be confident in their future, but it’s not a black and white option like some make it out as.
And it’s also obvious that Apple is using cash to buy back it’s stock. Which makes your debt argument specious.
Or don’t the words “cash neutral” make sense to you?
Folks will yowl, of course, that Apple isn’t worth a market cap of $1 T. Fine. Pick a figure it is worth. All things being equal, if 10% of the outstanding shares are bought back, then the value of each remaining share goes up 11.1%.
You didn't use the words "cash neutral" in your original post. If you had then maybe I'd have believed you had a clue what you were talking about.
And Apple are definitely using debt to fund a large part of the buyback (even if they aren't targetting one remaining share), it's been very widely reported on, so you can take your "specious" argument and do what feels natural with it.
And Apple USED debt to buy back the stock. Past tense. And always had more than enough cash to cover that debt. Hence the effort required just to reach cash neutral. Oh, and that acquired debt was at an extremely low interest rate.
Try not assuming that other folks don’t know what they’re talking about next time.
One other point: You said “...fails to mention that since you're spending money or accumulating debt to fund the buyback, then all other things being equal, the pie will get smaller...”. That would be true if the market gave any value to Apple’s cash. They don’t, which you should know. In fact, buybacks are a very clever way to force the market to acknowledge that cash!
None of those things would increase shareholder value. And most would be not much different than throwing the money into the ocean