Apple may be better off returning cash to shareholders

“Apple delivered an impressive quarterly earnings report for the fourth quarter,” Eric Ervin reports for TheStreet. “Apple surpassed analyst expectations with year-over-year profits up 31% and earnings a share of $1.96, up 38%, on revenue of $51.5 billion. Apple’s guidance of $75.5 to $77.5 billion in revenue surpassed analysts’ expectations, as well. It was by all accounts a strong quarter, and encouraging for long-term Apple investors.”

“But for some poring over Apple’s financials, questions remain about Apple’s huge cash pile of more than $205 billion and its ramifications for shareowners,” Ervin reports. “As Robin Wigglesworth, U.S. Markets Editor for the Financial Times, tweeted after Apple’s earnings announcement, ‘If Apple was an asset manager it [would] be bigger than Loomis Sayles, Babson, Janus, Bridgewater, TCW, Putnam, Henderson, Standish etc…’ For investors betting on a company that delivers stylish electronic devices with sleek operating systems, it was a potentially alarming insight.”

“Apple now has more than $99 billion of corporate bonds in its portfolio, representing almost half the cash on its balance sheet, which are considerably more risky. With that scale, Apple manages more fixed income assets than Jeffrey Gundlach’s Doubleline Capital Management, which reported $76 billion of assets under management as of June 30. In fact, just the most recently quarterly increase in Apple’s cash position, $3 billion, is more than double the total assets managed by Bill Gross in his Janus unconstrained bond fund,” Ervin reports. “Which raises the question: Are Apple investors really seeking exposure to a massive fixed income mutual fund? Or would they be better served if Apple returned more cash to them?”

Read more in the full article here.

MacDailyNews Take: Since there is so much cash, more than enough to develop an Apple Car (and a manned Mars mission or twelve), Apple would do well to at least bump up the dividend to competitive levels or — dare we say it? — even make the dividend attractive.

22 Comments

  1. Apple still has the tax problem on repatriating earning held overseas.

    If Apple is going to take a tax hit, shareholders would be better off if Apple used the money for additional share buybacks. Investors would only be hit with lower capital gains rates (lower than dividend rates), if and when they actually sold shares.

  2. A “potentially alarming insight”? What is this guy smoking? Apple has had a massive and growing horde of cash and securities for years, and it has continued to grow despite putting many tens of billions into stock buybacks and dividends.

    I am an AAPL shareholder and I am not in the least alarmed by this well known fact. I consider having ~$200B (net around $150B after considering corporate debt) a heck of a lot better than having little or no liquid assets. Certainly Apple ail have to consider higher dividends and such going forward. The company should not continue to accumulate profits without bound. But I don’t want alarmists like Eric Ervin to influence investors any sway market sentiment, potentially turning a big positive into a big negative.

    The good news is that Apple management could not care less what people like Eric Ervin think.

  3. With an existing dividend of 1.77%, Apple could raise it to 10% and the stock price would fall a corresponding 20%. You don’t get something for nothing. I would rather see Apple tell its story more effectively and have the stock rise 30 to 50% per year than have a paltry dividend of a few percent.

    If you are looking for income from your stock, sell off a few shares every month and live a little. You can’t have your cake and eat it too. Selling is the most difficult part for most investors.

    1. Apple’s gigantic pile of cash is collecting very little return. It’s an extraordinarily low return relative to the rate of return on Apple’s business. Currently if you invest a dollar in Apple, you’re only investing 70% in Apple’s business, and 30% in cash with a very low return.

      An investor would be better off if that cash didn’t exist and the dollar investment would be entirely in Apple’s business and receive a much higher rate of return.

      So the question is what to do with that cash. Certainly, not all of it should go away, but remember that the cash is not only increasing radically, but the growth rate of the cash is increasing as well.

      Where the cash goes is debatable, but some of the options:
      1) Buy other companies
      2) Return cash to shareholders as dividends
      3) Invest in R&D for new products
      4) Share buybacks

      All of these are good options. The caveat for #1 is that the purchase of other companies should either benefit Apple’s ecosystem or add value parity to Apple. In other words, Apple should either buy tech that they incorporate into their products or the company should be highly profitable and provide leverage for Apple.

      Investing in R&D for new products makes sense along with the caveat that they can only do so much and those product must be successful.

      “If you are looking for income from your stock, sell off a few shares every month and live a little. You can’t have your cake and eat it too.”

      Sure you can, if Apple continues to ignore your advice and offer dividends like most other established and highly profitable companies.

      It’s funny because I’ve been making this argument for years now. At first saying that at some point Apple would do dividends and buybacks, and of course they did. Now, I’m saying they’ll increase on both of those, and the same counter-arguments are being made despite the fact that Apple is still doing terrific.

      1. If you are living on the dividends, then you must have a large AAPL holding and you can easily afford to sell a few every month. You won’t live forever and I would advise you to estimate your needs for the remainder of your life and make a plan to sell off a little each month.

    2. Mediocre theory at best SML – problem is the dividend is insignificant and the stock is not rising whatsoever relative to its quarterly growth, YTD 6% approximately, bottom line is the selling pressure is greater each and every day versus purchasing pressure – the big money is getting out, my opinion is they have lost faith in the story.

      1. The story isn’t compelling any longer despite the short-term good news. The bottom line is that the stock has been stagnant for a full, calendar year, up 1-2% at best. This is unacceptable to investors.

    3. Anonymous Stock Market Lessons, you not only misunderstood my post, but you compounded it by spouting bullshit. The only lesson that you apparently learned about the stock market is how to lose money.

      kevicosuave understands the situation very well. You, ASM, do not.

  4. And dividends should be paid only to those who have held their shares for, say, six months.

    This would reward investors over speculators and make shorting and day trading much much less attractive. It would do wonders for the stability of the share price.

    I wrote to Peter Oppenheimer proposing this some while back but only got a standard thank you for your email acknowledgement.

    1. Quit repeating this “taking Apple private” mantra. It does not work that way. A corporation cannot take itself private using corporate (shareholder) resources. It does not work that way. Do I have to say it again? It does not work that way. This has been addressed on this forum dozens of times. It takes external assets/loans to buy out a corporation and take it private.

  5. About time, someone writing an article, well at least the head makes sense.

    Finding new ways to just spend the money is stupid. Research, thought, exploration, is what’s needed until a good idea is found. Hey, Apple already has a research budget. Plus it makes no sense to keep throwing money at a problem, especially when you don’t have one to solve.

  6. Why not spend a little of that money and hire Techtronix or someone to build a proper MacPro for those of us not well served by trashcans and sealed up boxes? Tim can probably find the cash in the couches of the e-suite.

    If Apple’s business is like a stool, one leg- the iPhone- is much longer than the others and it is not wise in the long term to be so dependent upon one product. Services may be important, but the Mac is not getting ad support, enterprise marketing, adequate investment and support from the mothership.

    Given Apple’s massive financial resources there are no excuses for the neglect of the best desktop/laptop OS available. It should also be noted iOS apps are written on Macs.

    From a customer since Apple || days and a shareholder since the last millennium.

  7. Apple is better off hedging itself against the screwed up future of WallNut Street by hanging onto its massive wad of cash. It guarantees Apple will live on into the future no matter what Apple Bear Bullshitters and other idiots inflict on the company, and no matter what moronic decisions the company makes in the short term.

    Apple is the ONLY company I’d like to see live on well into the future. Every other company is wanting or plain old moribund in comparison.

    Live on Apple! HANG ON to the future represented in your CASH CACHE!

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