How effective is Apple’s capital distribution program?

“Apple shocked the market last week, delivering not only a top- and bottom-line beat when delivering its fiscal third quarter financial results, the tech giant provided strong fourth quarter guidance, effectively killing rumors that it would delay the launch of its highly-anticipated iPhone 8,” Richard Saintvilus writes for Nasdaq.

“The headline numbers, meanwhile, weren’t the only thing to be excited about,” Saintvilus writes. “The market ignored how massive Apple’s capital distribution program — often taken for granted — has become. Apple’s Board padded the company’s capital return program by $50 billion, while extending the distribution timeframe by four quarters. Analysts have asked whether that is that the best use of Apple’s cash.”

“The company has taken some 20% of the float off the market just in the past five years. And if you’ve held Apple stock during that span, you’re up almost 80%,” Saintvilus writes. “Aside from helping to stabilize the stock price, which prior to the buybacks, were extremely volatile, Apple’s purchases have seemingly been well-timed and executed — more often than not — when the share price was undervalued.”

Read more in the full article here.

MacDailyNews Take: Apple’s buybacks and dividends certainly were effective in not only stabilizing the share price, but also in tamping down most of the Wall Street demands that Apple “do something with their cash” (execute large acquisitions).


  1. I really like Apple’s dividends although I realize the dividend yield isn’t close to what some companies offer. It’s possible if Apple is able to repatriate that overseas cash at a lower tax rate, shareholders might benefit from larger increases of a yearly dividend. I’d prefer larger dividends than the cash being used for share buybacks but whatever Apple decides is good. I’m also eager for at least one large acquisition. It’s so frustrating to see a company like Amazon being able to make all those acquisitions and they don’t even have a pile of reserve cash while Apple doesn’t do anything to impress the greedy big investors in terms of growth. I just want to see Apple make one large acquisition that can take some pressure off of declining iPhone sales during the lean quarters. I have no idea what Apple should purchase but I’d like some company excelling in software as opposed to hardware.

    1. I don’t want to see Apple make any large acquisition. There is simply no case for any of them, and if Apple were going to make them, they would already have done so at the much lower prices those companies commanded several years ago. Making large acquisitions means disruption in both companies, often for several years. Usually, these large acquisitions don’t pan out.

    2. Historically, large acquisitions end up losing money. The upper management from the company being acquired tend to cash in big, but the shareholders of the company making the purchase…not so much. Sometimes the losses are enormous (AOL comes to mind, also Nokia).

      Apple has been good at targeting smaller companies with technologies that complement Apple’s strategic goals (e.g., touch ID, processor development, etc.). The Beats acquisition was one of the few larger acquisitions that Apple has made – most are tens or hundreds of millions.

      I would also like to make a clarification on dividends. Regular dividends are a return of excess income after the infrastructure and R&D needs are met. If Apple repatriates the overseas cash, then they *might* declare a one-time dividend to return some of those assets back to the shareholders. But that should not play into the regular dividends — it would not make sense to advance regular dividends beyond the level that can be supported by ongoing operations. That is asking for trouble down the road.

      The fact that Apple even issues a dividend is a sign that it has moved beyond the pure growth phase in which all available capital is needed for operations, R&D, and infrastructure growth. The company has matured and no longer needs to store all of its excess accumulated earnings. It can build the new Apple campus, increase R&D spending, establish strategic supplier contracts, and still have money left over to return to shareholders. This is the proverbial “good thing.”

  2. I know Richard for a number of years, and he’s definitely one of the better writers out there, particularly when having to do with Apple.

    But I disagree with most of those who consider stock buybacks to be distributing cash back to investors. It really isn’t. Only when we can see proof that a buyback has raised the stock price by the value of the buyback, and it stays up by that amount, can we say it’s true. Unfortunately, despite the apparently obvious result of a buyback, that’s is, that the profit per share goes up, as there are less shares, etc,, there is no real evidence that that affects the stock price more than for a few days, at best.

    In addition, how does accumulating that much debt, in Apple’s case, help the company, or shareholders? So while Apple has about $262 billion in cash and investments, they now also have about $100 billion in debt due to the borrowing they do for the buybacks (dividends are paid out of US earned profits, not borrowing). This lowers the credit rating of the company, and lowers the cash they have for an acquisition, should they want to make an (ill advised) large one. It also lowers the value of the company overall, as the amount of cash that’s added to the companies books is lowered by the debt.

    In addition, everything I read says that Apple’s quidence for the next quarter is as high as it is because of the iPhone 8, which is now assumed to not be late, due to the higher than expected guidance.

    But I’m not so sure all of it is due to that. No one expected a 30% swing in iPad sales this quarter, going from about a 15% drop last year’s quarter from the year before, to a 15% leap this quarter. Everyone was expecting a smaller drop than otherwise expected, due to the new, inexpensive iPad. But with a 15% increase in sales, even though that only resulted in a 2% increase in dollar sales, it didn’t drag Apple’s sales and profits down as it has over the previous two plus years.

    If Apple is expecting a big fourth quarter for iPad sales, another 15%, or so, then that would account for much of the increased quidence. With Apple selling an extra 2.5 million iPads this quarter, with an average mrsp of about $450, that amounts to about $1,125 billion in extra sales. If Apple is counting on that again, then it would reduce quidence by that number if next quarter it is subtracted from it, leading to quidance that’s more in line with delayed iPhone 8 expectation.

    I believe that the 8 will be roughly on time, but in reduced numbers. So what I get is a $billion in iPhone 8 sales next quarter, plus over a $billion in extra iPad sales.

    I believe that seems about right.

    1. Buybacks serve a purpose. They reduce the dilution of ownership resulting from stock awards to management and employees. All things being equal, reductions in the number of outstanding shares increased earnings per share and, thus price per share (assuming fixed P/E). All of this is tax neutral to investors because you are not realizing any gains until you sell your stock. But dividends result in taxes, unless you are invested in a traditional IRA. In addition, buy and hold investors have to reinvest those dividends back into the stock to approximate the same effect as a buyback.

      If you want regular income from AAPL and the current dividend is insufficient, then you are going to have to periodically sell some shares and pay the resulting capital gains taxes.

      It is very difficult to discern whether Apple’s use of capital on buybacks has actually returned commensurate value to the shareholders. The buybacks are spread over years along with the impacts of numerous quarterly earnings announcements, new product releases, economic and political cycles, and so forth. Experts can estimate the impacts of the buybacks on the price of AAPL, but with some margin of error.

      All I can say is that I have earned a considerable amount on my AAPL shares over the years in a buy-and-hold strategy with dividend reinvestment. Ultimately, the net growth in my investment is the bottom line for me, personally. My opinion is that Apple has been a good steward of its resources over the years. R&D investment has paid off incredibly well, and Apple has avoided the terribly expensive mistakes of some of its peers in terms of major acquisitions. f the worst that you can complain about is Apple’s acquisition of Beats for around $3B, then count yourself lucky.

  3. as a long time and long term apple user and investor, i personally would like to see less money going into buybacks and more into dividend payments.

    the days of explosive growth are behind us and apple is now a value stock, rather than a growth stock. which is fine with me.

    on the other hand, given the volatile ups and downs of its , stock valuation i wouldn’t mind seeing a substantial boost in my dividend yield to make me feel better about the wisdom of my investment – as a retiree it would be nice to have a steady and growing dividend income whether the overall value of my holdings climb or decline.

    it is an old man thing i guess

    1. AAPL is up 55% in the past 11 months. The “explosive growth is behind us” meme is bullshit. I’ve only been a stockholder for 7 years, but whats happened in the last few months rivals what I saw when I first invested. I wouldn’t be surprised if AAPL hits $200 by the end of the year, as long as they can keep up with iPhone 8 demand, which will be insane. And yes I’d like to see higher dividends. Less than $500 annually for $30k+ invested is paltry.

    2. Given your situation, a preference for increased dividends is understandable. But I do not want Apple to borrow to pay increased dividends. They should be paid using excess earnings produced during normal operations (i.e., not including one time “windfalls”). And dividends should not be increased to the point that they are negatively impacting R&D investments or other key factors.

      Apple’s current dividend yield is 1.61%. That is actually pretty good for a growth company in consumer electronics. One might argue that Apple is in a transition process towards becoming a value company, but its massive and increasing R&D budget somewhat belies that assertion. In any case, investors in Apple have been able to enjoy significant stock appreciation in addition to earning a dividend yield that approximates quality bonds. I am happy with that.

      If you need more income, then I am afraid that you are going to have to sell some AAPL from time to time.

  4. Buybacks are a utter waste of money. And Apple should stop it. Nothing wrong with just saving money, Apple is going to need it to make products somewhere other than China.

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