sacto joe

GeorgeBMac said:

sacto joe said:

GeorgeBMac said:

sacto joe said:

GeorgeBMac said:

gatorguy said:

retrogusto said:

Yeah, anyone who thinks it’s directly correlated is mistaken.

There are also a few other things to consider: Apple makes a ton of cash each quarter—so much that they don’t feel that they could efficiently spend all of it on things like R&D. As a result, they can distribute some of it to shareholders, but there aren’t so many ways to do that. When they pay a dividend, the underlying value of the shares theoretically decreases by the amount of the payout, because company assets have been distributed to shareholders’ individual bank accounts. Those shareholders pay tax on those dividends at the rate of normal income. If the company buys back shares, the underlying value of the shares does not decrease (and will increase in the future faster than it would have), because the money has been reinvested in the company, and gains from the share value will be subject to capital gains tax rates, which are 15% in the US if you hold the shares for more than a year, which is much lower than other income is normally taxed. As an additional benefit, when shares are bought back and retired, those shares no longer receive a dividend, so the company’s overall dividend payout is reduced. So for every million shares Apple buys back, they are saving $770,000 per quarter at the current dividend rate. This may not seem like a lot, but it adds up—according to this article, they saved almost a billion dollars in dividend payments last year just as a result of the shares they bought back in the first three quarters last year. Those same buybacks from last year will save them even more this year, because the dividend rate is higher now, and the more you buy back and the higher the dividend, the more you save. 

Thanks for that post!
Excellent job explaining it, helps me better understand possible reasoning behind Apple choosing to go with stock buybacks rather than more direct dividend disbursements to reward investors. 

The part that he's wrong in is that stock buybacks decrease the net worth of the company (which is part of the stock pricing equation although not heavily emphasized these days) and, in particular, the money is NOT being "reinvested" in the company -- it is gone.  It is no longer available to the company for any purpose.  The company has decreased its future viability by reducing its ability to invest in new products, plant or equipment or to diversify.

The only thing buy backs accomplish is to prop up the stock price by increasing earnings per share.   But, in the long term, they decrease those earning through lack of investment.

Apple, under Jobs was always adamantly opposed to such chicanery and kept the money to support the future growth and viability of the company.   But, activist shareholders got too much control and forced Apple to start these partial liquidations.  It's part of the decline of U.S. industry where financiers run the company to harvest its profits rather than owner/manager entrepreneurs who grow the company.

“The part that he's wrong in is that stock buybacks decrease the net worth of the company...”

The “net worth” is measured in EPS and RPS, not in dead cash that serves no purpose to the growth of the company. The market is right to view cash for cash’s sake as dead.

Assuming a company that is neither growing nor shrinking, reducing share count and decreasing cash stash completely offset one another. Eventually there’d be zero cash except for earnings and all net income would be returned to stockholders in dividends. If the company ever wanted extra cash, it could simply issue more stock. Or borrow it, and reduce net income. Or reduce the dividend.

But that all values a company one way. Another way is via stock price. Some investors focus on one, some on another. And some on both. I’m in that last camp. For me, the stock price is more important than the dividend, but the underlying value PER SHARE is primary. The cash is fungible.

First, you cut off my quote -- making it misleading.   The complete quote was:
"The part that he's wrong in is that stock buybacks decrease the net worth of the company (which is part of the stock pricing equation although not heavily emphasized these days) and, in particular, the money is NOT being "reinvested" in the company -- it is gone."

And, part is my fault because I should have said, "Do Not Decrease".   It does decrease the net worth of the company   because, unlike your contention that net worth is measured in Earnings per share (it isn't) it is simply Assets minus liabilities.   And, when a company gives away its assets (whether to charity, government or shareholders) its net worth decreases.  But, you are correct that net worth per share tends to balance out with a company doing stock buybacks.   Nevertheless, when a company decreases its assets -- particularly liquid assets -- it decreases its net worth and its future viability.

Yes, net worth is a measure of total assets. But you’ll note that I used quotes. because net worth as typically defined is pretty much meaningless to an investor. Net worth per share, now, actually means something.And that’s the “net worth” I was referring to. But you are so intent on trying to make your mistaken point that you consistently (purposefully?) ignore my particularly salient point. Apple’s future viability is not being impacted negatively AT ALL by doing something actually useful with it’s otherwise-dead cash. Show me one shred of proof that Apple is holding back on funding any single aspect of their business and choosing instead to natter money away to shareholders or potential shareholders via stock options or it’s extremely generous employee stock purchase program.

You won’t because you can’t.

LOL... So how does giving away money make Apple a better company or improve its chances as a viable company going forward?  It doesn't.  It makes everything worse.

But if you believe that giving away money improves one's chances, then please, write me a check.   A big one.

GeorgeBMac said:

sacto joe said:

GeorgeBMac said:

sacto joe said:

GeorgeBMac said:

flydog said:

gatorguy said:

red oak said:

Debt interest is tax deductible for Apple.  That brings the interest cost down to its dividend yield 

So,  a nearly cost free way for Apple to buy back its own stock.   Makes a ton of sense, especially if Apple thinks the stock will 2 or 3X in the next 8 years 

Nothing about the stock repurchase program makes any sense to me. Apple doesn't keep it, they burn it, and if there's some proof that the buybacks have increased the stock price above where it would otherwise be it's being keep secret. 

If you don’t understand something it’s best to keep your uninformed opinion to yourself. Share buybacks  increase earnings distributed to the remaining investors. That is reflected in both dividends and in the share price. 

Apple’s board didn’t authorize share repurchases simply to piss away money for the hell of it. 

Yeh, they pretty much did.   Apple the company reaps no benefit from shareholder welfare programs. 

Not even close to being true. Apple employees, past and present, either own or have options to own AAPL. It well behooves Apple to support it’s stock price. Which buybacks do, propaganda utterances to the contrary notwithstanding.

So, how does sinking a couple hundred billion into stock buybacks benefit anything but the stockholders?   It certainly does nothing to grow or strengthen the business.

Come on. You’re brighter than that. If Apple employees or potential employees get a better price on their AAPL stock, they’ll tend to stay with or want to join the company, and have more incentive to do their best work. Economics 101.

Your logic hangs by a thread...

GeorgeBMac said:

sacto joe said:

GeorgeBMac said:

flydog said:

gatorguy said:

red oak said:

Debt interest is tax deductible for Apple.  That brings the interest cost down to its dividend yield 

So,  a nearly cost free way for Apple to buy back its own stock.   Makes a ton of sense, especially if Apple thinks the stock will 2 or 3X in the next 8 years 

Nothing about the stock repurchase program makes any sense to me. Apple doesn't keep it, they burn it, and if there's some proof that the buybacks have increased the stock price above where it would otherwise be it's being keep secret. 

If you don’t understand something it’s best to keep your uninformed opinion to yourself. Share buybacks  increase earnings distributed to the remaining investors. That is reflected in both dividends and in the share price. 

Apple’s board didn’t authorize share repurchases simply to piss away money for the hell of it. 

Yeh, they pretty much did.   Apple the company reaps no benefit from shareholder welfare programs. 

Not even close to being true. Apple employees, past and present, either own or have options to own AAPL. It well behooves Apple to support it’s stock price. Which buybacks do, propaganda utterances to the contrary notwithstanding.

So, how does sinking a couple hundred billion into stock buybacks benefit anything but the stockholders?   It certainly does nothing to grow or strengthen the business.

GeorgeBMac said:

flydog said:

gatorguy said:

red oak said:

Debt interest is tax deductible for Apple.  That brings the interest cost down to its dividend yield 

So,  a nearly cost free way for Apple to buy back its own stock.   Makes a ton of sense, especially if Apple thinks the stock will 2 or 3X in the next 8 years 

Nothing about the stock repurchase program makes any sense to me. Apple doesn't keep it, they burn it, and if there's some proof that the buybacks have increased the stock price above where it would otherwise be it's being keep secret. 

If you don’t understand something it’s best to keep your uninformed opinion to yourself. Share buybacks  increase earnings distributed to the remaining investors. That is reflected in both dividends and in the share price. 

Apple’s board didn’t authorize share repurchases simply to piss away money for the hell of it. 

Yeh, they pretty much did.   Apple the company reaps no benefit from shareholder welfare programs. 

Soli said:

larryjw said:

tjwolf said:

gatorguy said:

red oak said:

Debt interest is tax deductible for Apple.  That brings the interest cost down to its dividend yield 

So,  a nearly cost free way for Apple to buy back its own stock.   Makes a ton of sense, especially if Apple thinks the stock will 2 or 3X in the next 8 years 

Nothing about the stock repurchase program makes any sense to me. Apple doesn't keep it, they burn it, and if there's some proof that the buybacks have increased the stock price above where it would otherwise be it's being keep secret. 

This goes both ways: there's no proof that "they burn it" - that share buyback have had no impact on stock prices.  But in general, the laws of supply/demand would suggest that buybacks would positively impact stock price.

Of course it has impact on stocks. Less outstanding shares over which the net worth is spread. 

But the buyback also reduces their assets on the balance sheet, specifically cash, which is why so many don't think that buybacks have an impact on valuation, but they clearly do for a variety of reasons, but in Apple's case being constantly undervalued is a major reason that the buybacks are beneficial.