What if Apple followed Warren Buffett’s advice?

“Apple will announce plans for its cash hoard next month, according to Howard Ward, chief investment officer at investment firm Gamco,” Daniel Sparks writes for The Motley Fool. “But if this rumor proves true, the most important question remains unanswered: How will Apple return cash to shareholders? Would the company be wise to take ace investor Warren Buffett’s advice, and repurchase more shares?”

“Share buybacks offer corporations a tax-free way to build shareholder value by buying back their own shares and, in turn, increasing shareholders’ ownership percentage per share,” Sparks writes. “Buffett has been known to criticize companies for buying back their shares, but it’s never because he thinks share repurchase programs are inherently bad. Instead, he criticizes companies for overpaying for their own stock.”

Sparks writes, “No wonder Buffett encouraged Apple to scoop up its own shares. A purchase near Apple’s super-conservative 52-week low would meet both of Buffett’s requirements for a well-executed buyback… But no matter what Apple does with its cash, the company trades at such a conservative valuation that almost any method of returning cash to shareholders would likely impact shares positively.”

Read more in the full article here.

13 Comments

  1. With Apple shares this low, it’s the best time ever if you have some extra cash. Fortunately Apple just happens to have a bunch of cash on hand.

    Baby Boomers: five-ten years from now I don’t want to hear a single one if you complaining you didn’t save enough for retirement. This was your opportunity handed to you on a platter.

    1. learn from me… i stupidly sold my shares to get into options… and as we know… AAPL is continuously manipulated.

      good for you guys if you get an increased dividend.

      but i think Apple should buy AAPL…

  2. An increased dividend would attract a certain class of buyers of the stock, but not a single analyst has raised this point. It would also make it easier to justify holding the stock through thin and thick, downs and ups. This would also increase the tax receipts of the U.S. government from dividend income, to help with the whopping debt.

    1. I think they should steadily increase the dividend each year, sure. But I’ll cry if they go nuts with it right now and increase it too much, or if they issue a large special dividend. It would be MUCH better if they bought back tons of shares. Like, $50 billion worth. Tomorrow.

      That would be much better for shareholders. Better to have the value of the stock go up instead of having a big chunk of the dividend go to the US Treasury and elsewhere, paid out in taxes..

      A buyback is tax free. a 25% better deal for investors.

      1. Taxes are not a bad thing. They pave your roads, and build your infrastructure and defend your country, and make sure the social safety net is present so you don’t have a bunch of disenfranchised crazies running around with machine guns trying to get their piece of the pie.

  3. I’m not a big Warren Buffet fan, but like he says, if you were given a chance to buy $1 bills for 80 cents you would wouldn’t you? Apple stock is clearly undervalued, Apple has a mountain of cash, why not put some of it to good use? Apple wins and the shareholders also win when the stock price hits the roof. It’s a no brainer as far as I’m concerned.

  4. How about this for “Think Different”:

    Apple buys a controlling interest in an investment bank that has been supporting short-sellers, and performs margin calls on all the leeches. With the DJIA at an all-time high, hopefully enough short-sellers will end up in the poorhouse to end this strategy for good.

  5. Here is the problem with Buffets advice: Its given on a GS 7 at 40,000′ and the only ones who get to listen to it that are not Warren Buffet have to sit out on the wing. Hard to live in that rarefied atmosphere and take advice from a chump change billionaire.

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