“On Tuesday, I read an article from fellow site contributor Antonio Carradinha detailing that Apple’s share buybacks were a problem, not a solution. A majority of the analysis was based on short-term results, which due to recent performance skew the company’s buyback performance,” Bill Maurer writes for Seeking Alpha. “I don’t believe that Apple’s buyback is or has been a problem.”
“The author takes a short-term look at Apple’s share price, which has not done well in the past year or so. However, the buyback has been around for a couple of years, and the stock has done extremely well since the program started,” Maurer writes. “Net income has risen by 10.15% over the ’13-’16 Q2 period, but earnings per share are up by 31.65%. The buyback has reduced the share count significantly, and normalized earnings per share are benefiting as a result. With the share count down by more than 16% over this period, you have to figure the current dividend payout has been bumped higher a bit as well. Even if we look at results compared to last year’s quarter(s), the buyback is helping soften some of the earnings per share declines.”
“As of Tuesday’s close, Apple’s dividend yield was 2.40%, while the 30-Year US Treasury bond was yielding just 2.14%,” Maurer writes. “With rates so low, it makes sense to repurchase shares and eliminate dividend payments, especially when your cost of debt ends up being lower than the dividend yield. There’s a cash flow savings there, which can go back into the business for any number of uses.”
Much more in the full article – recommended – here.
MacDailyNews Take: It not only makes sense for Apple to be buying back shares in this market, it would be stupid not to be executing share repurchases. In fact, one would be on an even firmer foundation arguing for even more buybacks than none at all.
Me like the 4X a year dividends. Please don’t stop.
Maurer writes: “With rates so low, it makes sense to repurchase shares and eliminate dividend payments, especially when your cost of debt ends up being lower than the dividend yield.”
In addition, while the dividend is not a tax deduction, the interest expense is a tax deduction.
Borrowing money for stock buyback is lunacy.
If the concept is so great, then MDN must be neck deep in debt, having borrowed money to buy thousands of shares of AAPL at $130/share.
Your post is lunacy. What about this paragraph do you not understand?:
“As of Tuesday’s close, Apple’s dividend yield was 2.40%, while the 30-Year US Treasury bond was yielding just 2.14%,” Maurer writes. “With rates so low, it makes sense to repurchase shares and eliminate dividend payments, especially when your cost of debt ends up being lower than the dividend yield. There’s a cash flow savings there, which can go back into the business for any number of uses.”
I love the divs… But the buyback is an enigma for me.. ..
The float has been reduced by 16% and my stock is down by 36%!😩
Are we to assume that the stock would have been down to 79ish if there were no buy backs… ?
The Benifits of the buyback have been completely absorbed by the reduction of the PE..
Unless Apple can creat buzz and excitment like it used to and encourage/inspire higher PE through creating confidance… I dont see how ill benifit from the buybacks..
Give it time. Apple has been systematically carving out the weakness in the market. They should easily have removed 20% of their initial float at some point this year. Hopefully even more if they’ve been opportunistic in taking advantage of the low stock prices these past few months.
As long as they continue to have great profits, and accumulate large amounts of cash, to go along with the aggressive rate they’re taking shares off the market, it’s bound to reach a point where there’s no longer any weakness left. At that point the price will start to move upwards as the supply continues to be constrained. This will happen regardless of what the analysts want to claim.
Patience is a virtue in this case.
👍…
I get Apple buying back shares. It makes a lot of sense if they’re going to continue to increase dividends in the future. I don’t know how Microsoft is able to give out all those dividends and they have far more shares than Apple with less revenue. I thought EPS was important in valuing a stock but I was wrong. Look at both Tesla and Microsoft’s EPS compared to Apple higher EPS and yet they’re blowing Apple away in share gains.
The thing is Microsoft stock will be rising and Apple’s stock will be dropping because Tim Cook hasn’t figured out how to increase Apple’s revenue with more than $200B in the bank. Except for the dividends, Apple shareholders have nothing to look forward to but a sinking stock while the rest of the market rises. Most tech companies are making key moves to excite investors while Apple is only producing yawns. That’s just pathetic. I’ve given up on Apple gaining in value. I’ll just take the dividends and be satisfied with that.
Blind loser.