“Though still certainly a force in the investing world, today’s Apple relies on a more diverse playbook, including share buybacks and dividends to generate returns for its shareholders, rather than relying solely on torrent earnings and profit growth, as it once did,” Andrew Tonner writes for The Motley Fool. “Case in point, Apple has emerged as something of a share buyback and dividend powerhouse since initiating its capital return program in 2012.”
“Thanks to its truly monumental financial resources — $159 billion in net cash and investments as of its most recent quarter — Apple has developed an impressive track record of returning cash to shareholders via buybacks and dividends,” Tonner writes. “As of its most recent quarterly report, Apple has utilized roughly $127 billion of the $175 billion the company has earmarked for stock buybacks. That’s an absolutely incredible about of capital committed to repurchasing Apple’s shares, especially considering the company’s entire market capitalization of $573 billion.”
MacDailyNews Note: As of last month, Apple had $232 billion in cash, with about $214 billion of that being held overseas.
“At a high level, stock buybacks should be thought of as a more tax-efficient way for a company to reward investors than dividends in cases when its shares are undervalued,” Tonner writes. “Companies with low P/E ratios, like Apple, can benefit tremendously from stock buybacks.”
Read more in the full article here.
MacDailyNews Note: Also of note, Apple’s statement on Restricted Stock Units (RSUs) form the company’s Annual Form 10-K:
The fair value as of the respective vesting dates of RSUs was $4.8 billion, $3.4 billion and $3.1 billion for 2015, 2014 and 2013, respectively. The majority of RSUs that vested in 2015, 2014 and 2013 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were approximately 14.1 million, 15.6 million and 15.5 million for 2015, 2014 and 2013, respectively, and were based on the value of the RSUs on their respective vesting dates as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to taxing authorities were $1.6 billion, $1.2 billion and $1.1 billion in 2015, 2014 and 2013, respectively, and are reflected as a financing activity within the Consolidated Statements of Cash Flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company.
The Company had 1.2 million stock options outstanding as of September 26, 2015, with a weighted-average exercise price per share of $15.08 and weighted-average remaining contractual term of 4.1 years, substantially all of which are exercisable. The aggregate intrinsic value of the stock options outstanding as of September 26, 2015 was $120 million, which represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding. Total intrinsic value of options at time of exercise was $479 million, $1.5 billion and $1.0 billion for 2015, 2014 and 2013, respectively.
If you ask me, it’s not working. As I understand it, fewer outstanding shares should make those that are left in the market more valuable. I have yet to see that effect. I think they should spend all the buy-back money on dividends to make Apple a real value company since growth is slowing. Higher dividends would make Apple a much better investment and that would certainly drive up the stock price…
And yet management at Apple thinks buy-backs are the thing to do. I wonder if it’s because they know something we don’t.
With a low P/E ratio and opportunities for growth, buy backs are the best place to use extra cash. So what does the Apple leadership team know? They’re not short-term thinkers.
This article will help understand why the company buying back shares. Enjoy.
Why Does Apple Repurchase So Much Stock?
Apple has emerged as a stock buyback powerhouse in recent years, but why does the company choose to reward its shareholders this way?STOCKS\
came across this article and find it very educational, I like to share with you guys, enjoy.
“Why Does Apple Repurchase So Much Stock?
Apple has emerged as a stock buyback powerhouse in recent years, but why does the company choose to reward its shareholders this way?”.
Getty Apple
IMAGE SOURCE: GETTY IMAGES.
As one of the most successful companies in history, investors may understandably wonder whether aging tech giant Apple (NASDAQ:AAPL) can deliver the same juicy returns for which it’s so famous.
Though still certainly a force in the investing world, today’s Apple relies on a more diverse playbook, including share buybacks and dividends to generate returns for its shareholders, rather than relying solely on torrent earnings and profit growth, as it once did. Case in point, Apple has emerged as something of a share buyback and dividend powerhouse since initiating its capital return program in 2012.
Apple’s share buyback history
Thanks to its truly monumental financial resources — $159 billion in net cash and investments as of its most recent quarter — Apple has developed an impressive track record of returning cash to shareholders via buybacks and dividends. Here’s a quick snapshot of Apple’s share repurchase history over the past four fiscal years.
Apple Stock Buyback History (ASR & Open Market Purchases)
FY 2013
FY 2014
FY 2015
FY 2016
Number of shares (in thousands)
336,832
502,284
332,552
187,171
Average repurchase price
$68.13
$89.59
$117.35
$106.85
ASR amounts (in $US millions)
$22,950
$45,000
$39,026
$20,000
DATA SOURCE: APPLE SEC FILINGS.
As of its most recent quarterly report, Apple has utilized roughly $127 billion of the $175 billion the company has earmarked for stock buybacks. That’s an absolutely incredible about of capital committed to repurchasing Apple’s shares, especially considering the company’s entire market capitalization of $573 billion. It demonstrates how Apple can utilize its massive financial resources to continue to create returns for its investors, even if its days of breakneck growth lie behind it.
It also bears noting that Apple has allocated a disproportionate amount of its capital return program toward stock buybacks instead of dividends. In fact, Apple has earmarked 68% of the $250 billion in its capital return program specifically to fuel share buybacks. As such, Apple’s clear preference toward stock buybacks also suggests they contain some kind of advantage over dividends. Why is that?
Why do companies buy back stock?
With chapters of corporate finance textbooks dedicated to the subject, breaking down the advantages and drawbacks of stock buybacks, especially when compared to cash dividends, can quickly grow esoteric. I don’t want to put you to sleep, here, but it’s handy for investors to have a general framework for why companies pursue stock buybacks, so let’s quickly review.
At their most basic, buybacks are one of two principle methods through which a company can reward its shareholders with their excess cash flow; the other is dividends.
Generally speaking, stock buybacks benefit investors by helping increase a company’s stock price. Here, it’s helpful to think of company’s profits as a pie. Buying back stock reduces the number of shares entitled to a company’s profits. It’s akin to reducing the number of slices of the pie, making each slice more valuable. As Homer Simpson would say, “Mmmmm. Pie.”
Additionally, stock buybacks carry an additional tax advantage. Investors who own a stock for more than a year are taxed at the lower long-term capital gains rate when they sell their stock compared to dividends, which are taxed as ordinary income. So as a general rule of thumb, stock buybacks help increase a stock’s price and typically result in a lower tax bill when investors sell their shares.
Stock repurchases can also be viewed, in theory, as a sign that a company sees its shares as undervalued, though this can prove tenuous in practice. Companies are aware of this exact effect, and some will attempt to use this “signal” to support their stock price. For example, the now-defunct Lehman Brothers famously instituted a stock buyback in late January 2008, ostensibly in an attempt to instill confidence in its rickety stock price. Ten months later, the company no longer existed. To be sure, many companies use buybacks to reward their investors in a rational and ethical manner, but it’s important to caveat that some companies use it for more self-serving aims as well.
Either way, at a high level, stock buybacks should be thought of as a more tax-efficient way for a company to reward investors than dividends in cases when its shares are undervalued. Companies with low P/E ratios, like Apple, can benefit tremendously from stock buybacks. But it’s important to note we’re just scratching the surface on this important and somewhat complex topic.
They will continue to buy back stock as long-term capital gain tax rates are lower than dividend tax rates. Lower taxes on stock appreciation for those mega stock owners who sell are more attractive than dividends.
Wrong. Tax rates on capital gains and dividends are scaled but both max out at 20%. I don’t know where you got your information from, but you are dead wrong. Tech may be your forte, but finance sure isn’t.
“Apple has developed an impressive track record of returning cash to shareholders via buybacks and dividends”. I hate this phrasing (and the whole “returning” concept) more than I can possibly describe!
How many current stockholders actually paid money to Apple for their stock? If it’s not “None” it is so close to none as to be not worth mentioning. None of these stockholders gave any money directly to Apple for their stock. There is absolutely NO “returning” of anything. Period.
Apple is *giving* money to stockholders through dividends. Apple is *buying* stock back on the open market. There is NO “returning”.
The problem is that Wall Street and most stockholders have developed the belief that Apple *owes* them something other than being selling great products and because of that being a great company (though Tim Cook’s Apple seems to have that part backward). Thus they believe Apple needs to *return* profits to them. These stockholders think they are *due* money from Apple. It’s pure BS. It is an entitled Wall Street and stockholder mentality.
Amen! There are very few “stockholders” anymore. Stockholders are people who “invested” and “hold” stock for the long run. We now have speculators, not investors. The system is broken pure and simple and all the BS about maximizing stockholder value, a fairly recent concept by the way, is nothing but smoke and mirrors.
Apple’s buy-backs increase the value of the remains shares, since there are simply fewer of them left in the marketplace.
The reason Apple cares, is because Apple is run by Tim Cook. Tim Cook is employed by the Apple Board of Directors. The Apple Board of Directors is appointed by the shareholders.
Wrong again. You have no idea what you are talking about. Why is it you techies keep trying to opine on corporate finance and capital management when you don’t know anything about it and have no real world experience in the area?
I’ve enjoyed years of dividends, and when Apple surprises us with the next “Big Thing,” we’ll see those reduced outstanding shares rocket up.
Patience.
Apple is playing the long game very smartly. The more Apple shares are owned by Apple, the less power Wall Street has over Apple.
I worked for a certain large corporation (not to be named) for many years. This corporation was well-respected within its markets and inspired loyalty among its employees. But there were too many shares outstanding and over time the board filled up with generic suits. They eventually installed another suit as CEO. The CED’s pay went way up. Staffing went way down and it became a joyless place to be (thank goodness I’m no longer there). From the consumer point of view, its products are cheaply-made echoes of what they used to be. They still make money, coasting on a name. But long-time customers know the stuff is crap now.
Apple’s buybacks are a very smart way of forestalling this outcome.
Apple’s buy-backs won’t change their board’s composition. They just reduce the number of outstanding shares in circulation.
Let me guess, you meant Microsoft, right?.
@Let me guess, you meant Microsoft, right?.
No. Remember I said our products were once respected. Doesn’t sound like Microsoft, does it 😉
The number of shares outstanding has nothing to do with shareholder governance.
By your logic, a stock split would result in loss of management control. In fact, it has no effect.
Shares that are bought back are not then controlled by the internal management, they are retired. Eliminated. Shareholders still hold 100% of the company and shareholder turn over and diversity continues independent of the buyback.
Whatever issues your company had, it had nothing to do with the number of shares outstanding.
Buybacks almost certainly helped Apple’s stock price a few years back. It probably has some impact now but unlikely to be as significant as the money spent.
The author forgot the key advantage for buybacks. It reduces the cost of dividends.
1.3 billion shares retired at $0.52 dividend per share means the cost is reduced by about $0.6 billion dollars a quarter or $2.4 billion a year.
Not an insignificant figure.
So, buybacks are a waste.
The Apple board and executive team have decided that instead of delighting customers with new products or directly rewarding investors for longtime stock ownership, instead it will reward speculators like Icahn.
With more liquidity than anyone else on the planet, Cook doesn’t know what to do with it, so he decided to listen to Wall Street which is enriched by every Apple buyback, which is funded by their loans. The Apple buyback program is not financed directly by Apple’s offshore cash piles. Cook is rewarding banks while promising Apple shareholders that their shares might increase in value in the future. But they haven’t, because Apple has slowed dramatically — it is simply not releasing exciting new products that people absolutely have to own as often as Apple did in the past, when Apple had significantly less resources but much more bold leadership.
Customers and longtime investors have not benefited from Cook’s leadership no matter how you look at it. You would have done better in the market buying a diversified NASDAQ index fund. That won’t change until Apple gets its fat ass into gear and starts delivering new hardware and software that just works.
If you disagree on anything I have summarized above, then explain with evidence. Impatience is more than warranted when I see a formerly great company wasting its time on dynamic emoji instead of great new Macs.
@Mike: In your view, what the new products could be for Apple?.
For starters, everything that is red on the MacRumors buyer’s guide: http://buyersguide.macrumors.com/
To that I would add pro software, including bringing back Aperture.
In addition, Apple needs a server in both pro and home versions.
You can use the iPod Touch as a speakerphone and any one of a number of free VoIP apps. The info about the iPhone headset and 3rd party Blutooth headsets was just extra for those who might want it.
Wrong thread. Not sure how that happened.
Stock buybacks areusually a huge waste of shareholder value. Dividends or re-investment would be better.
How about making a proper Mac Pro tower?
Amen to that Scotty.
Make it so!
32″ iMac!