“Apple’s $200 billion cash hoard, combined with its now $69 billion in annual free cash flow, often doesn’t get the credit it deserves — especially now that the company has proven to investors it is willing to aggressively return a good chunk of this cash to shareholders through dividends and repurchases, with a heavy emphasis on the latter,” Daniel Sparks writes for The Motley Fool.
“Since Apple began repurchasing shares in late 2012, the company’s total share count has been reduced by about 13.3%,” Sparks writes. “But, going forward, by how much can Apple realistically continue to reduce its share count?”
“With no reason on the horizon for Apple’s annual free cash flow to take a hit in the coming years, it’s quite possible that Apple could reduce its share count by $45 billion every year for the next five years,” Sparks writes. “Assuming the average purchase price for Apple shares over the next five years is about $150, up 28% from where shares are trading today, total share count could be reduced from about 5.7 billion today to 4.2 billion in five years, or by 26%. In other words, Apple’s earnings per share could realistically grow about 5% annually over the next five years from repurchases alone — not bad for a market leader trading at just 13.5 times earnings.”
Read more in the full article here.
MacDailyNews Take: Hopefully, Apple’s been executing significant buybacks throughout the summer AAPL sale!
So… What the plan Stan?
Each side –
Apple is genius to buy back stock and pay out dividends, even though the market treats them like their whipping boy.
Apple is stupid for wasting cash and taking out debt to give money back, when they could have put that money to work with purchasing some heavy hitters like IBM or Intel.
I am looking for an intelligent discussion, are they doing a good or bad thing?
“It depends.” The principle of buying back shares means more independence against the emotional whims of stock sell-offs. Of course, this means you have to spend your money to do this. If you have already funded all/most of your requirements (R&D, etc), buying back isn’t necessarily a bad thing.
There’s no wrong answer to this, as long as money used to buy back stocks is used judiciously. People will say “it should never be done,” or “they should buy it all back,” or whatever, but unless you know the future, you can’t say with certainty what the proper move is.
Considering Apple’s patterns for the past few years (continues quality products, healthy profits, etc), they can do what they want.
Why did Apple do the 7-1 split?
Dividends are the only direct way to give money back to the investor. That is what I prefer.
Stock buybacks can have an indirect effect on stock price and therefore increase stock value. If based on outstanding shares then on paper the stock buyback has increased value by 13.3%. That amount is easily buried in the volatility that we see in Apple stock.
I personally think buybacks are a method to cajole the market and literally pours equity into it by being a large scale buyer of shares.
So my choice is dividends primarily and buybacks when opportunities arise. Of course for some shareholders the tax impact may be more significant for dividends so they may prefer buybacks as a means to increase share value.
Apple will always buy companies that enhance the corporation. I don’t think buy heavy hitters like IBM or Intel will be a good fit.
Dividends are the only way to give money back, but as the original article notes, by doing buybacks, you are effectively giving money back to shareholders because dividends then become larger. If you have $10 million to distribute to shareholders and 1 million shares, then the dividend is going to be $10/share. If, however, you buy back 1 million of those shares but still maintain that $10 million dividend, then all of a sudden, the payoff per share becomes $11.11, a fairly large increase. Now, these numbers are just for example, and of course, things are a bit more complex than that, but buying shares back can benefit existing shareholders in myriad ways,
It seems they have purchased a great deal of shares at above the current value. Perhaps the plan has not helped the stock and Apple has incurred substantial debt as well to finance the plan. I hold quite a few shares and I would rather they quit buy back and dividends as well. It just is not working to increase share price.
The stock is going nowhere as long as the financial geniuses keep screaming about the implosion of China’s economy. Repurchasing shares isn’t going to offset that.
Two years ago, Wall Street said China could be Apple’s savior. Now, China is said to be Apple’s executioner. Everything Apple does appears to backfire on shareholders and disappoint investors. That can’t be seen as something good.
Average 150?
Wonder why he is assuming the average will be at 150?
Good question. Should ask the author of this article why $150?. Only he knows the answer. lol
At this point it appears Apple is throwing good money down the toilet. If you look at the stock today, Apple’s sell-off was greater than its rivals like Amazon, Google, Microsoft, etc. So far, the share repurchases seem to be a huge waste for Apple shareholders. When I think of all the decent things Apple could have done with over $100 billion it makes me sick to my stomach.
I’m not even talking about M&A. You wouldn’t believe how many real projects that money could have funded. The Burj Khalifah cost around $2 billion. The Akashi-Kaikyou Bridge cost around $3 billion. Those were some notable and useful projects just to name a couple. Apple could have funded hospitals or parks or schools with just a portion of that money. Instead, Apple took over a $100 billion, lit a match to it and watched it go up in smoke. I would have happily given Apple the OK to do some useful projects like that. Apple is now far poorer and less respected than it ever was. From my simple view, I just don’t get it. OK, shares disappeared but who the hell really cares. No one at all. It helped no one, not even Apple.
Why keep throwing good money down the toilet if the company is going to stay doomed or disrespected by Wall Street and the mobile industry at large? Donate the money to charity if they can’t think of anything better to do with it. That at least might establish some good will for the consumer base. Apple is simply looking foolish for tossing away money into a black hole.
Apple is now far poorer and less respected than it ever was.
You’re on crack.
-jcr
Apple should buy company like say Tata Motors or Hyundai or even BYD and then work on AAPLE CAR.
Current shares outstanding is 5.70 Billion.
The money managers and the media don’t give a single crap about Apple’s program for stock buy backs. In fact, there was a piece in the financial media THIS MORNIG that said explicitly that Apple should ABANDON their share buy back because it was throwing it’s money down a hole… AND, given the value of the stock now..$112 and change, with a NEW target of $86, they may be right…
How many AAPL shares can Apple repurchase?
How about ALL of them. Then Apple can tell all the AAPL manipulators to piss off. But that is but a dream ~ ~ ~