With Apple’s huge cash pile at 30% of its market cap, it’s time to boost dividend, buybacks

“With Apple shares getting crushed in late trading following a December quarter earnings report that featured lighter-than-expected revenues, disappointing iPhone sales and March quarter guidance well short of Street expectations, there is going to be increasing heat from investors to do something to boost shareholder sentiment on the stock,” Eric Savitz writes for Forbes.

“The company ended the quarter with $137 billion in cash and investments, or about 30% of the market cap after the sharp sell-off,” Savitz writes. “Now, the company does already pay a dividend of $2.65 a share, which at the stock’s newly reduced level is still a yield of only 2.3%… The company plans to spend $45 billion over the next three years buying back shares, but that’s not as impressive as it sounds, given that the company’s cash position increased by $16 billion in the December quarter alone. The Street would be a lot more impressed if the company bought back $45 billion or more of the stock in the next couple of quarters, rather than spread over three years.”

Savitz writes, “Apple just posted a quarter that investors hated; the company could win back some investor support with a more shareholder friendly approach to managing the balance sheet.”

Read more in the full article here.

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  1. And Apple should care what these people think because why? Sure, investors want Apple to commit to buying $45 billion of shares back in 2 quarters because that would bump up their share price.

    These analysts make it out such that Apple should be more concerned about its stock price and investor satisfaction than it should be about its products. And that’s what dooms companies — blow successful business by spending time trying to placate Wall Street.

    1. Thats exactly why these investors, Wall Street types hate Apple so much. Apple just wants to make awesome products, while making tons of money to invest in itself for future awesome stuff!

  2. This is so rich. I hope colleges start doing case studies on this. Apple is owned almost 70% by institutional investors. These institutions are taking their investment advice not from Apple management but from analysts. Over the course of several years the analysts got it wrong quarter after quarter and the institutional investors saw their holds in AAPL increase several hundred percent in value. Now the analysts have punished AAPL causing the stock to drop 10% in value and the analysts new advice is that Apple management needs to do something to shore up investor sentiment? If the Analysts had left Apple alone, investor sentiment would have been ecstatic. Now, because of their stratospheric expectations, Apple couldn’t replace the lost market capitalization with their “cash on hand.” Wonderful job, Analysts.

  3. As a shareholder it is great to get dividends. In my case I reinvest it to grow my holding.
    That feels more useful to me than a stock buy back since I think the effect will the temporary.

    Long term investors are likely to be more attracted to dividends since it provides a tangible return on their investment.

    Apple will probably do nothing. They know what they are doing and do not have to play to the market.

  4. Apple doesn’t need to worry about the stock price. That’s utterly irrelevant to them, except in terms of employees being rewarded with stock options, but if that becomes a problem Apple can use their cash for incentives instead.

    Years ago when Apple was struggling, Wall Street had all kinds of horrible advice for the company and since Apple was weak they were in danger of needing to do whatever Wall Street said in order to keep the stock high. Steve Jobs *hated* that, and I believe that’s the real reason he wanted Apple to accumulate so much cash: with that cash comes power over Wall Street. It’s no wonder all the analysts dislike Apple’s cash horde: it robs them of their power.

  5. like comment from Zmarc : “Apple doesn’t need to worry about the stock price. That’s utterly irrelevant to them”

    the investors own and control the company

    Investors through votes elect the board who hire the CEO
    investors can fire tim Cook and all the SVPs

    right now they are not doing it because most still have faith in apple management.
    I agree that apple should focus on products etc as Steve Jobs as said “take care of the top line (products) and the bottom line will take care of itself”

    BUT having the WRONG UNDERSTANDING of Investors is dangerous. HP fell apart because the Board Elected by the investors (shareholders) interfered and kept changing CEOs.

    Also please note Jobs etc made a conscious CHOICE years ago to go PUBLIC i.e sell shares to investors, without investors money apple wouldn’t exist today. Does NOT matter whether apple needs investors NOW, the law says since apple went public Investors OWN the company. If apple didn’t want to be bothered with shareholders they should have stayed PRIVATE .

    Piss off the big shareholders too much (i.e let the share price drop too much without giving returns in dividends etc) and they will elect a Board which will hire the CEO and execs to do what they want.

    Of course tim cook etc are also shareholders but the own a small fraction of apple shares.

    (right now a lot of the Hedge Funds aren’t bothered with drop in shareprice as they make money if the stock goes up or down. Long term growth investors on the other hand aren’t too happy)

      1. Danox … not the sharpest tool in the bag.

        “People don’t get this : INVESTORS OWN APPLE” did not espouse doing anything that wall street wants, they only pointed out the fact that Apple is a publicly listed company and the consequences associated with that fact.

      2. @ Danox

        you call me a moron
        yet you haven’t refuted a single point I’ve made.

        if Cook gets delusions from listening to people like you and not try to appease the shareholders he will get fired.
        (and I don’t want Cook fired)

        right now he’s far from in dangert as the vast majority of shareholders (voters) like him.

        if you not an aapl investor you have in reality ZERO say in what apple does with it’s money . Buy stock and then you can vote.

        No shares and you like a citizen of Cuba complaining about the U.S elections. No one in USA gives a fuk…

    1. a few more things..

      Non aapl shareholders have little clue how public companies like apple work in regards to shareholders and should educate themselves before making comments.

      Note all the POLITICAL moves Cook made to appease or in regard to shareholder feelings:

      — immediately on assuming total control as full CEO Cook declares a dividend . He also announces share buybacks to offset dilution of shares issued to execs.

      Tim Cook KNOWS he is NOT in the same god like secured position as Jobs (investors elect the Board who hire the CEO)

      Other political moves:
      granting huge share bonuses to SVPs to keep them around. Electing new SVPs who are loyal to him.

      Getting rid of Forstall who was a thorn in his side.
      The huge sloppy “Maps Apology” where he hints that better maps from rivals like Nokia were available on the iPhone (Jobs would never have made such an embarrasing apology) were in my estimation to knock Forstall’s star down.
      (iPhone sales and polled satisfaction rankings show that Maps wasn’t that big an issue for vast majority of users)

      Lots of investors know that Forstall who was involved in MacOSX and head of iOS was key in products that make 80% or more of apple’s profits. Cook really needed to embarrass Forstall to get rid of him without getting into trouble with shareholders.

      (don’t flame me: I’m NOT saying whether it was right or wrong to get rid of Forstall, I;m saying the WAY cook went about it was due to concern of shareholder sentiment)

    1. The investors who ‘crashed’ the stock already sold their shares, so how are they going to be ‘rewarded’.

      more correctly the investors who crashed the stock will be kicking themselves if apple declared a big dividend.

  6. This is the best time for a stocks split. New investors comes in and
    (hope) those old traders and institutions that caused these Apple
    price manipultions don’t ever come back.

  7. This is the best time for a stocks split. New investors comes in and
    (hope) those old traders and institutions that caused these Apple
    price manipulations don’t ever come back.

  8. We all agree that Apple is secure from bankruptcy and has enough wallop to do what it wants in the business side.

    How about Apple say that ALL profits (small or large) for one future quarter be distributed as a dividend. Limit this dividend to long term shareholders by paying only those that have held the stock for more than, say, 8 months.

  9. Fuck “investors”. What we are talking about here is the stock market. The same collection of carnies that nearly drove the worlld’s economy over a cliff. Listening to their spurious rationalizations infuriating.

  10. Like it or not, Cook (and every other officer) and the Board all have a fiduciary duty — LEGALLY — to make the best outcome for Apple’s investors. That is how the legal system works with a public company.

    Now, the real issue is, “What gives the greatest return to the investors?”

    Is it a quick buyback or an short term increase in dividends?
    Is it Apple investing in itself: fixing the broken supply chain (even build to order iMacs should have a ship time of << one week), IR&D developing new products, expanding into new markets (new stores, new business alliances), buying up innovative companies or technologies?

    My thought is that it is the latter.

    However, way too many analysts and financial pundits think it is the former. They are beating the drum for a quick return. They want profits NOW — to hell with greater profits in the long term.. A 10% return this year is better than a 100% return over the next five years. This focus on short term gain is what's REALLY wrong with Wall Street.

    OK…. back down off my soap box…

  11. Snorting profits. Eric? Gimme, gimme, gimme. I want money. You are so very Wall Street. Addicted to demanding more from Apple, your stock crack dealer. Or so it seems.

    People like Eric want cheap money, never mind what it does to Apple. Loudmouth analyst Toni Sagnocci DEMANDED a dividend so that his company could take in billions for nothing. The result: Apple stock is now controlled by mutual and hedge finds, options traders and short sellers. No longer is Apple’s stock price based on fundamentals in the short term.

    Now the shakedown is buy-backs, even though studies show they kill long term investor value. This is why Warren Buffet does not play their BS game.

    What next?

    Greedy bastards. Stick it, Eric.

  12. It is utterly bizarre how analysts and investors are reacting to Apple. But part of the problem IS how Apple regards their balance sheet and its investors. Apple, in it’s “Think Different” culture, just regards those things as irrelevant.

    They are not.

    If Apple would split 10:1, suddenly far more individual investors, whether in taxable portfolios, or retirement accounts, would be far more willing to buy 100 shares at $50 than 10 at $500. Though the price is irrelevant, the psychology of small investors regards a $500 share riskier that a $50 share…or ten $50 shares.

    Their cash position is a drag on earnings, as well. For a company that has a return on equity of 32.1% over the past 5 years, and 10% of the book value of the shares consists of cash, moving the return on those cash assets from 1% (being generous currently) to 32% would improve the return on equity by nearly 10% to around 35%. And that alone would, theoretically, push the price of the stock up by 10%.

    But the other, maybe much bigger issue, is the institutional ownership. Every quarter, institutional investors have to “pretty up” their quarterly reports for shareholders. And they can’t rely on Apple to help them do that for their investment in the company. It produces wild swings. When the stock has a great run up, they are disposing of significant blocks — all at the same time — to get holdings within exposure parameters. A lower stock price would broaden holdings, stabilize price moves, and reduce the quarterly buying/selling binges, and their impact.

    It’s really important to note that this conversation has NOTHING to do with the company’s business, or performance.

    A true financial analysis of AAPL would reveal that the company is deploying its assets incredibly well, earning remarkable returns on the investment in the business, has an incredibly efficient manufacturing and delivery system, and, in many ways, operationally, is a model business.

    Conventional wisdom dictates that those returns be leveraged by using debt costing far less that the returns earned by deploying the capital. But in AAPL’s case, that would be nonsense. They can’t invest all the capital they have now, thus the large cash holdings.

    I can’t help but think there is something of a miser mentality at work. Memory of leaner days, fear of the company failing leading to hoarding of assets (cash) for an unforseeable turn of events.

    In spite of this, a company with a 35% Return on Equity, and a current P/E hovering right at the 5-year average low P/E (11.6) is mispriced. Period. The demonstrated growth deserves being rewarded by a much higher P/E ratio. The low risk associated with the high cash reserves and lack of debt should add a factor to that much higher P/E ratio. An auxiliary analysis of product lines, market share and growth of market share of various “hero” products should, at the very least, shore up the confidence behind an analyst valuation outlook.

    By comparison, a “Top 10 Growth Stocks” put Ericsson (ERIC) at the top based on a 13.43% EBITDA (Earnings before interest, taxes depreciation and amortization) of $4.6 billion, or 13.43%, noting that operating margin is 7.89% and net profit margin is 5.54%. P/E is at 15.49

    AAPL: EBITDA 37.4% ($11.925 B); operating Margin 22.8% ($8.223 B) and Net Profit Margin 22.8% ($8.223’B). P/E is at 11.6. Less leverage = lower risk. Cash balances = Lower risk. Lower risk = lower required returns by investors. Lower risk to investors = higher P/E. higher earnings growth = Higher P/E.

    It’s not at all hard to say that a company like AAPL should, without much angst, draw a P/E of 20-30. With your eyes closed. And that makes it easy to value at $1,000 per share.

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