Why Apple won’t pay a dividend or buyback shares

“Once investors calm down after Apple Inc.’s earnings disappointment, the bullish ones will point again to its ever-growing cash pile, which climbed even higher in the last quarter,” Therese Poletti reports for SmartMoney. “Apple had a rare fiscal fourth-quarter earnings miss on Tuesday, hurt in part by customers delaying iPhone purchases until the current quarter. More than four million units of the new iPhone 4S were scooped up in its opening weekend earlier this month.”

Poletti reports, “Apple’s earnings also highlighted its ever-expanding cash hoard which now totals about $81.6 billion including short and long term marketable securities. With that whopping treasure chest, investors may start pressuring for moves like share buybacks or a dividend… Fat chance.”

“For one, the company hardly needs to employ special payoff efforts to woo investors. Even with Wednesday’s sell-off, Apple’s shares are up more than 25% for the year, and have surged an astounding five-fold over the last five years prior to the introduction of the first iPhone. The broader market, as measured by the S&P 500 index [SPX] , has shed about 14% over that same time,” Poletti reports. “For technology companies, dividends are often the first sign that the big-growth era is over, or that they have matured… Continued strong growth in both earnings and the stock price will likely keep the pressure off Apple. Cook doesn’t need to offer up a dividend or buyback right now. And if he ever does, investors may find themselves worrying about more than simply the large pile of cash.

Read more in the full article here.

16 Comments

    1. I hope they won’t. It’s worth more to the shareholders if they don’t.

      If they do a distribution, the shareholders will take an immediate haircut with a tax hit. Leave it baked into the share price.

      And stock buy-backs often don’t work as well as intended — you’ll see a not-insubstantial portion of those funds spent evaporate (that is, the share price won’t move up nearly as much as you would think for the share supply removed from the market.)

  1. With 66% of the cash sitting in offshore accounts, bringing it to the US would trigger a 35% tax rate (read elsewhere). All the less money to use or distribute to shareholders. Why bother.

  2. And in typical “Therese Poletti” fashion misses the bigger point. This cash is a substantially under used asset by Apple. Frankly, if it’s used for acquisitions, well, that scares the heck out of me because with that cash pile it can substantially change the nature of the Company overnight.

    I would endorse a one time dividend of say 25 – 50% of the cash. That should be more than enough to do any acquisition coming down the road and also provide ample cash to continue to pump through the supply chain to maximize capacity utilization and price.

    1. Thank God you have no power.

      Buying assets in China, Korea, Taiwan, Singapore, Europe, India, Russia and Thailand makes no sense, but that is where the bulk of the money is located.

      How does Apple get foreign assets into your pocket.

      Perhaps you will pay the ridiculous USA double taxation.

  3. Sorry Chaz, As a shareholder, of course, I would not mind a dividend. But it just does not make sense.. Not for Apple.

    Most “investors” that push for a payout, are not real investors, they are just sharks that want to buy in, get cash, sellout and then laugh at Apple for being so dumb as to give them money.

    Just my thoughts,
    en

  4. STUPID. STUPID. STUPID. Anyone dumb enough to buy into the idea of paying a dividend should let Wall $treet make you grab your ankles right now.

    To schmucks like you and me, a dividend will maybe buy you a Happy Meal. To lazy institutional investors, a dividend wall pay out millions, if not billions. No wonder greedy, incompetent frigtards like Toni Sagnocchi keep screaming for dividends.

    And as some of the more astute readers have pointed out, any dividends paid will result in tax hits – but I guess you just LOVE paying Alternative Minimum Tax – be my guest.

    As for acquisitions, Apple has a history of small ones rather than the huge, company-wrecking deals over which Wall $treet has an orgasm. Siri is a perfect example of a tiny acquisition that paid off in just one day. I doubt that we’ll see some brain-dead merger like the AOL-Time Warner deal from Apple. It’s not the company’s style.

    Berkshire Hathaway doesn’t pay a dividend either. For some reason, nobody second-guesses Warren Buffett. But the late Steve Jobs was always fair game for pundits and analysts. I’ll leave you to conclude how the pundits have compared to the dearly departed Mr. Jobs.

    Please kill the stupid idea of dividends and buy-backs once and for all. Please.

  5. The more cash they have, the more they can guarantee future R&D resources. For those to whom this applies, it ensures that more of your non-Apple initiated predictions of iDevice features are being tested out. It also attracts more investors so that even more money can be used towards R&D and acquistions of companies like SIRI. This is one of the biggest competitive advantages that Apple has. Why give it up? Personally, I wouldn’t care if Apple were to only give out dividends every 5 years……as long as they continue to have the technological advances to show for it. If nothing else, it’s a hell of a long term investment……………….wish I would of gotten in back in 2010 when they were around $250 per share. 60% ROI in a mere year and a half.

    1. @MBBM
      “Personally, I wouldn’t care if Apple were to only give out dividends every 5 years…”

      Apple hasn’t paid dividends since 1995 (save for a special dividend in 202) so you do care?

  6. Apple uses its cash stockpile for leverage – see the memory and display pricing markets for just a couple of examples.

    Apple makes small, strategically smart acquisitions – bringing in new tech and especially people to improve its feature set when developing its own solution would be either too time consuming or too costly.

    Apple doesn’t do big, massive acquisitions, which rarely work out as well as the two companies think they will. In fact, most of the time large acquisitions only benefit large shareholders, who get additional shares or a premium price for their existing shares of a company which is not growing anyway.

    Apple is much, much better off keeping its cash and investing in facilities, technology, or whatever else it needs to grow its business and ensure that it controls supplies of materials at reasonable or even ideal price levels. This is what can help Apple bury the competition, and insure continued profits in the 40% range while its competitors eek out 5%-10% profits.

  7. Two things: one, Apple won’t repatriate the 2/3rds of its cash held in overseas subsidiaries until the US Gov’t decides what it is going to do with taxes. Will it offer a one-time tax holiday for foreign profits? Will it change the corporate tax code, etc?

    Two, Apple should just pre-announce that when cash hits a certain size, like $100B, that it will either start issuing a dividend or start a share repurchase program. That way, any risk that Apple is no longer a growth company is mitigated, as the start of a such a program isn’t for lack of ideas, but that the cash is a certain size. Really, is there anything that one can buy or invest in of that size, other than Apple’s own stock?

  8. Therese Poletti reports for SmartMoney. “Apple had a rare fiscal fourth-quarter earnings miss on Tuesday, hurt in part by customers delaying iPhone purchases until the current quarter. More than four million units of the new iPhone 4S were scooped up in its opening weekend earlier this month.”

    Yeah we see this they are near bankrupt!

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