When Apple reports earnings late this month, the company is widely expected to increase its dividend and boost stock buybacks once again.
Over each of the last 10 years, in fact, Apple has used the announcement of March-quarter earnings to provide the market with an update on its capital-return policy.
Apple has been aggressively returning cash to holders for years now, mostly in the form of stock repurchases, but also with gradually increasing dividends.
Apple currently pays a quarterly dividend of 23 cents a share, for a yield of 0.6%. The company raised the rate last year by a penny, or a little under 5%. The year before that, the increase was 7%. It would seem logical to think Apple will raise the rate this year once again by a penny, which would be 4%, to 24 cents quarterly—although a 2-cent increase, or a little under 9%—would bring the annualized rate to a nice round dollar.
Last year, Apple’s board approved a $90 billion buyback authorization, matching the one from the year before. Over the last five years combined, the company has announced $405 billion in stock buybacks. Since the end of fiscal 2017, the company on a split-adjusted basis has repurchased 4.7 billion shares, reducing share count by 23%.
MacDailyNews Take: Apple’s best use for its copious amounts of excess cash is to return it to its shareholders via buybacks and dividends.
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I have no argument for increasing the dividend to shareholders, but you have a naive view of stock buybacks if you think ordinary shareholders are the real beneficiaries of stock buybacks, or even that buybacks are the “best use” of Apple’s cash hoard. Buybacks are primary designed to increase the compensation packages of top execs, whose bonuses are often pegged directly to stock valuations.
Also, for some other uses of Apple’s cash, here are a few suggestions:
1) Lower retail pricing;
2) Pay production workers more than the bare minimum, including moving some capital-intensive production (like chip fabrication) back to the US;
3) Increase staffing for software quality control to everything “just works” again;
4) Invest in upgrading Siri so it has more intelligence than it seems to be stuck with now;
5) Perhaps most important: Create the 21st century version of Xerox PARC to invent a next-generation human-machine interface. The desktop UI has basically been static over the past 40 years, with mostly cosmetic improvements. With machine vision, large language models, and vast today’s advanced chip designs, today’s keyboard-and-mouse, files-and-folders paradigms are long overdue to be retired. And Apple has the cash in hand to make it happen.
It’s possible Apple is already using their billions in R&D to make this future happen. I certainly hope so. The big fear is that Apple turns into Kodak or Xerox: perfecting present technology and ignoring the future others saw coming
TL:DR – Apple can — and should — do better things with their billions than inflate the stock price.
Writer Guy: I was prepared (with your phrase “you have a naive view of stock buybacks”) to disagree with you—as I often do. However, you made some excellent; logical and valid points which are perfectly presented. Kudos to you.
Thanks for reading all the way through. Appreciate it.