Does Apple’s share repurchase strategy make sense in this market?

On April 30, 2020, Apple announced financial results for its fiscal 2020 second quarter ended March 28, 2020 and revealed that Apple’s board of directors had declared a cash dividend of $0.82 per share of the company’s common stock (AAPL), an increase of 6 percent. The dividend is payable on May 14, 2020 to shareholders of record as of the close of business on May 11, 2020. The board of directors has also authorized an increase of $50 billion to the existing buyback program.

Shawn Tully for Fortune:

Apple buyback. Image: Apple logoFor the past half decade, Apple greatly enriched its shareholders by shrewdly deploying buybacks. But the approach that was a splendid gambit when its shares were cheap is looking like a rigid, questionable strategy now that they’re far from a bargain…

Over fiscal years starting on Oct. 1, 2014 (Apple’s fiscal year ends Sept. 30) through March 2020, Apple generated $321 billion in free cash flow and channeled $278 billion, or 86%, into repurchases. That policy proved a big success. Apple paid an average price of $160 per share, a 45% discount to its early May level of $291. Over those five-and-a-half years, Apple has shrunk the number of shares outstanding by over 26%, from 5.865 to 4.334 billion. Shareholders who’ve owned Apple since 2014 have seen their stake in its profits grow by more than a quarter thanks to that regular program of buybacks. That’s a case study in what [Berkshire Hathaway’s Warren] Buffett calls the virtue of buybacks.

…Buying in shares, even at high prices, is preferable to “empire building” by overpaying for acquisitions, a pitfall Apple has wisely avoided. Or perhaps the comfort and stability that Apple epitomizes has permanently raised its value, and that safety does merit a premium multiple. In that case, continuing big buybacks makes sense. That scenario’s possible but unlikely. On paper, the best option might be to conserve cash and buy back loads of stock when Apple is obviously cheap or fairly priced. That course might better satisfy the Buffett criteria. But it’s tough to depart from a tradition that’s been so famously successful.

The only clear conclusion is the one dictated by the numbers. For folks thinking of buying Apple at today’s rich prices, consider that those huge buybacks won’t deliver nearly the bang they used to. And if the safe haven halo fades, and Apple reverts to its traditional middling valuation, the return to the old normal would turn what looked like shelter into the cold comfort of stinging losses.

MacDailyNews Take: This is a good analysis of buybacks, and their benefits, but suffers from the usual lack of imagination, believing that Apple is done innovating and nothing new is coming (Apple Glasses, for one example). Apple is not stagnant and, if Apple’s future is half of what we expect it to be, Apple shares today are grossly undervalued.

[Thanks to MacDailyNews Reader “macnificentseven48” for the heads up.]


  1. Avoiding the pitfall of empire building is a good point. Sure Apple has plenty of cash but to throw it on a company that does not gibe with Apple’s mission makes no sense.
    Apple assimilate tech companies to enhance their capabilities. If a company does not fit that goal then they are not interested.
    I would rather have Apple buyback shares than waste money on a business that is a distraction to Apple’s long term strategy.

  2. It never made sense. I have a fair amount of Apple shares, and I’ve been frustrated at the amount of money they’ve thrown away on this, and the amount of debt they’ve piled up as a result, which now sits at $110 billion, with another $88 billion in debt offering they’ve just now made.

    And yet, their dividend is just barely 1%, with a paltry rise of 5% last year, and 6% this year. Since they spend far more on share repurchasing than dividends, it’s hardly credible that they couldn’t take just a bit from the repurchase and put it into a dividend increase instead.

    Some have remarked that by repurchasing shares, it’s cheaper to pay out dividends, and so dividends could be higher than they otherwise would be. That’s nonsense.

    1. Dividends are taxed — and shareholders get them whether they want them or not. Not everybody wants those dividends – For example, those who get pushed into higher tax brackets because of dividends. You can’t decline dividends.

      Buybacks repay shareholders in a tax free fashion.

      1. “Buybacks were particularly essential for Apple, because its profits, though gigantic, barely grew. From 2015 to 2019, Apple’s earnings budged less than 4% from $53.4 billion to $55.3 billion. Yet its earnings per share jumped almost 29%. It was the big buybacks that by lowering the float by 25% drove roughly 90% of the full increase in EPS. For fiscal year 2020, repurchases once again should account for almost all of any rise in EPS, because earnings are likely to stay flat at best.“

        Is no one bothered by the import in the Fortune quote above? Though I acknowledge the gain BB’s mathematically bring to the shareholder, they also serve to grow the stock without equivilant/corresponding profit. Buying growth, or stock stability is unhinged from true value. As a shareholder, I like stock stability and growth. Viewing it objectively, it’s propping the share price. BB’s used to be known as manipulation.

      2. So what, you sound like that person worried about paying taxes before winning the lottery.

        You are not getting paid by buybacks as a retail investor, but Apple management is. Getting paid is money directly in your account by end of business day. (after tax of course).

        1. A simple minded one-zero – on-off thinker, the money is payed into your account (in your pocket) then reinvested or not at your direction by your broker….and a tax is payed unless the account is a retirement account (401k/IRA)….

      1. IBM, Boeing, and Ford have dicey futures ahead of them, Apple is the best play by far. Buybacks help management, Hedge funds, and big institutional investors more than the small retail investor.

  3. What is better being long thru a 2 for 1 and a 7 for 1 split with dividends (Apple) or buybacks with same? Answer: if you are long the stock splits with dividends.

    Note: if you fancy yourself a day trader you don’t care about being long in any stock, buybacks always win out, which why WS loves them to death, commission and churn.

  4. Makes great sense. You guys are missing the picture. At this rate, in 5 years, management will control over 50% of the shares. They will have the power to take Apple private if they want.

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