Apple dominates in stock buybacks, too

“While rolling in cash with strong sales of iPhones, Apple repurchased $45 billion of its stock in 2014, far above second place Exxon Mobil,” Brian Deagon reports for Investor’s Business Daily.

“Apple increased its spending by 74% from the $26 billion spent the previous year,” Deagon reports. “Exxon Mobil was a distant second at $13.1 billion, among companies in the S&P 500, according to a report from S&P Dow Jones Indices.”

“Stock buybacks are viewed as a benefit to company shareholders and can be an indicator of company confidence,” Deagon reports. “When shares are repurchased, the number of outstanding shares is reduced, meaning the relative ownership of each investor increases. Buybacks also help improve a company’s price-to-earnings ratio, one of the most well-known and often-used measures of value.”

Read more in the full article here.

MacDailyNews Take: Keep retiring those shares, Apple!

[Thanks to MacDailyNews Reader “Bill” for the heads up.]

11 Comments

  1. Can someone with more knowledge of financial markets than I have explain why Apple did a 7:1 stock split if their goal was to ultimately decrease the number of available shares? Doesn’t the split increase the number of available shared seven-fold? Not complaining since now I own seven times as many shares as I did before. Just genuinely curious about the strategy.

    1. Investors were limited in buying stock because the unit price was so high that they may be tempted to look for cheaper stocks BUT the real reason may be that the OPTION prices were so high that the option buyers were shunning the stock.

    2. The split just changed the price. Buybacks actually reduce the portion of ownership of the company held by the public. When earnings are announced, they are spread across a relatively smaller outstanding share of public stock, thereby increasing yield/returns for those remaining investors.

      1. So when stocks are repurchased by the originating company, they are considered automatically ‘retired’? I had though that the repurchased volume of shares remained part of the ‘outstanding’ shares unless explicitly declared retired. I imagined those repurchased shares were simply used to provide stock options for the CxOs and employees.

    3. The number of shares increased as a result of the split, but the ownership represented by each share was reduced by the same factor. In terms of the Apple stock buyback, the stock split theoretically had no impact at all because the a given amount of money would buy back the same percentage of the corporation before and after the split. In practice, the price of a stock often trends upwards following a stock split because of the perceived confidence of corporate management and greater investor accessibility to the stock.

      A common reason to split shares is to reduce the share price to enable a larger number of investors to purchase shares. In the old days, it was advantageous from a transaction cost standpoint to purchase shares in round lots of 100. A round lot of shares at $100 per share is $10,000 while a round lot of shares at $700 per share is $70,000. Splitting the stock divides the ownership of the corporation into smaller pieces. With discount online trading, I don’t think that trading in round lots is important anymore.

      Of potential importance to Apple is the fact that the stock split paved the way for Apple to be added to the DJIA 30. It is a price-weighted index and, prior to the split, Apple would have had excessive influence on the index. If AAPL keeps rising, they might have to announce another stock split!

  2. Elmo…don’t think about it it terms of “number of shares.” Think Share Percentage. You have 7 times as many shares as you did before the stock split, but so does everybody else — so you own the same percentage of Apple after the stock split — as you did beofre. Through the buyback, Apple is buying back millions of shares (now, they’re buying back 7 shares for every 1 share they would have bought back with the same amount of money) which means your shares represent a greater percentage of the company. In essence, your shares become a bit more valuable because the same earnings are going against a smaller share base. Make sense?

  3. If I had to guess, the main factor was probably their intent on leaving the NASDAQ for the DJIA. The Nasdaq is weighted on market capitalization while the DJIA is based on share price. Prior to their split, AAPL would have been to expensive to be a apart of the DJIA as they would’ve held too much weight within the DJIA.

  4. Excellent responses above. Well done, folks.

    With so much cash on hand, Apple had to decide the best way to deploy or invest it. Given that Apple rarely makes the big acquisitions that Wall $treet and pundits love (kudos, Apple), the company had to decide whether buybacks or increasing the dividend payout made more sense. In the end, Apple opted for both.

    Some large investors such as Carl Icahn called for increasing the dividend, which has its merits. Typically, public companies like Apple take a long-term view to dividend payouts, preferring to follow a strategy that allows for uninterrupted dividend payouts with gradually increasing dividend payout rates over time. Apple could have chosen to issue a special (big) dividend, something that companies like Costco have done in recent years.

    Instead, Apple’s executive management decided that retiring stock shares from the marketplace made more sense, and for good reason. If the cost to do this is cheap (Apple opted to issue corporate bonds to finance this at extremely low interest rates), reducing the number of available shares could increase the value per shares held, and as we have seen, the price per share has jumped nicely.

    As interest rates begin to rise, expect to see the buybacks taper off. Besides, Apple wants to be sure that the amount of bond debt the company adds to its balance sheet is manageable. Sometimes, public companies undertake buybacks at the wrong time, and do so when the per share price of their stock is too high, with the result being that it’s a poor use of the company’s cash. This is why Apple’s buybacks will eventually stop, and dividends will continue to be a focus of returning cash and value to stockholders.

    Taking a long-term view, all this has been good. So long as the debt overhang does not drag too much on Apple, and given the amount of cash Apple continues to generate, it’s doubtful that it is, the combination of buybacks and a gradually increasing dividend will pay off for Apple stockholders.

    IMPORTANT STOCK TIP: Remember to reinvest your Apple stock dividends, boys and girls – that’s how you can get rich slowly and without spending an extra penny. Over 5-15 years, you can double the number of shares of Apple just being reinvesting your dividends. As Apple stock’s value grows over time, this will compound the value of your investment, making you more wealthy than you can imagine.

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