Apple Announces Plans to Initiate Dividend and Share Repurchase Program

http://www.apple.com/pr/library/2012/03/19Apple-Announces-Plans-to-Initiate-Dividend-and-Share-Repurchase-Program.html

by ssclafani • 14 years ago

199 175 14 years ago

Initiate? How about "re-instate dividend". Apple previously paid a dividend : http://finance.yahoo.com/q/hp?s=AAPL&a=08&b=7&c=...

brudgers5• 14 years ago

Not exactly surprising or bold, i.e. it is the easiest way to deal with the surplus of cash. However, it could be seen as an indicator that Apple's management cannot figure out how to use all that cash to continue the company's growth. In that sense, the announcement of a dividend is a bellwether moment.

sithwarrior• 14 years ago

Or that is dosent need all of 100 billion dollars in cash to continue its growth.. If you look at the details, they will use 45 bil over 3 years, so in 2015 I believe they'll still have about 100 billion in cash.

shingen3• 14 years ago

They're now accumulating $40 billion per year in cash (for likely fiscal 2012 numbers).

So they'll continue to add to the stock pile of cash most likely. By 2015, under this plan, they'll have perhaps $135 to $150 billion in cash, unless they increase the buy-backs or dividend further, and that's assuming their annual profit stops growing.

robryan• 14 years ago

A big acquisition could just end up being a distraction from their core businesses. There is probably only so much you can spend on improving the current supply chain, $100 billion+ is a crazy large amount. What if they feel they can continue growth without spending every last cent?

melling• 14 years ago

They could buy a well run supporting business and leave it alone. Diversifying outside your core business is a bit risky, of course.

mbateman• 14 years ago

A more positive way to see this is that Apple has become so profitable that they can continue funneling huge amounts of cash into everything that they want, and still have lots left over.

But I agree with your sentiment. It's a bit sad that Apple seems to have maxed out their ability to use money on themselves.

shingen3• 14 years ago

As the world's largest corporation, they are now under intense scrutiny by the US Government, which prefers to leash all massive corporations.

Apple is not allowed to spend its $100 billion buying companies, even if it wanted to. For example, they could buy HP and Dell and shut them down (maybe all PC manufacturers in fact, just with cash); such would not pass anti-trust concerns. They could buy Facebook with cash + stock; again, that wouldn't make it through anti-trust review. And so on.

Even though they're not formally regulated under anti-trust just yet as, say, Microsoft was - their actions are indeed strictly limited by what the government will allow them to do.

nikcub8• 14 years ago

I can't think of a single business that Apple could buy (note: could buy, not 'look at the market cap and assume that is what it costs to buy the company') that would give it a level of control in an industry that the government would care about.

nikcub8• 14 years ago

The expectation of a larger dividend is what has been driving the share price up recently (which is why it will probably fall today).

I don't know where that expectation came from. First Apple had the problem of repatriating international funds, so this was never going to be a $30, $50 or $100 (some crazy estimate) dividend.

Second all precedent from similar companies issuing a first dividend (well not first for Apple, but first for the 'new' Apple) such as Microsoft and Cisco is 1-2%.

I don't think the buyback will be very effective, not against the bigger dividend expectation.

1.8% is about par. I am surprised they didn't split the stock. Question now is how far the stock will fall today before picking back up again later on as yield-focused funds buy into the new action.

csomar2• 14 years ago

It's actually trading +1.67% (pre-market).

nikcub8• 14 years ago

which is up on Fridays close but down a few points on the highs reached in after-market over the weekend (~609).

get a better sense a bit after the markets open and then at the end of the day today.

this news should be a disappointment, but nothing about the hysteria around AAPL surprises anymore.

smackfu3• 14 years ago

For MSFT, they started dividends in Feb 2003, but then did a huge one time dividend in Nov 2004, $3.08 / share or about 11% of their stock price at the time. So there is precedent for tech companies issuing large dividends to get rid of cash stockpiles.

nikcub8• 14 years ago

thats right, forgot about that special dividend. they also announced a huge buyback at that time as well.

here it is http://www.microsoft.com/presspass/press/2004/jul04/07-20boa...

I think their stock has been pretty flat since, and the dividend increases haven't done much to stimulate the price.

Edit: btw, is this you in the MF thread about it? :) http://ask.metafilter.com/11657/Why-Will-Dividend-Make-Micro...

sliverstorm• 14 years ago

a huge one time dividend in Nov 2004, $3.08 / share or about 11% of their stock price at the time.

That's what I don't get about the excitement over this dividend. It's like 0.5% of the cost of a share.

brown9-23• 14 years ago

I don't think you can really point to any one single reason why Apple's stock has been driven up so far lately with any sort of confidence. The market is not always rational when it comes to individual stocks.

snowwrestler• 14 years ago

There's probably a good argument to made that it could be higher. Their P/E is somewhere around 16, compare to around 20 for Microsoft. Does anyone really think Microsoft is going to grow faster than Apple in the near future? I think the recent stock bump has basically been the market realizing that despite growing very fast, Apple's stock price still hasn't kept up with real revenue growth.

bdz• 14 years ago

why they are announcing this 30 minutes before the actual conference call?

jrockway• 14 years ago

Because investor conference calls are not Macworld keynotes. The call is for questions, not "one more thing".

bluedevil2k• 14 years ago

They make more money every quarter than they plan to pay out with dividends or stock repurchases - so their cash hoard will continue to grow...just more slowly now.

jsumrall• 14 years ago

After reading the article about SpaceX, I think Apple should start their own program. They can afford it. SpaceX is being paid less than 2 billion to go to the space station. I'm thinking:

iRocket iSpaceShip iStation

See, there a product family already. And the best part is that the iSpaceShip can only dock with an iStation. So you gotta buy everything.

astrodust3• 14 years ago

Apple has shown it's unwilling to invest in things it can't turn into a huge win. It's not being run by Howard Hughes.

bbhacker• 14 years ago

I am in no position to tell Apple how they should spend their money but after reading the articles about Elon Musk today I can't help but imagine how the world could be changed to become a better place with all this money.

And I don't mean that Apple should give money away to charities.

Why not invest in space exploration , electric cars, self-driving cars, medical devices, green energy,... It is not Apple's core business, but "phones" have not been the business of "Apple Computer" as well.

Apple has moved humanity forward with the personal computer and mobile phones. I don't want them to stop with computers, smartphones, tablets or TVs.

I want Apple to aim for more than just consumer electronics - but I guess we won't see that happening.

tptacek4• 14 years ago

They can't, unless they believe they'll be profitable doing it. It's not their money. That's a difference between Apple and Musk.

jcfrei2• 14 years ago

that's not true. it is their money - the shareholders probably just wouldn't like the move and as a result, apples stock price would plummet (but that doesn't really need to bother them - it's not like somebody's just gonna buy the currently most expensive company in the world). however what would bother me more as an investor would be that apple apparently has no idea what to do with all that money (how about expanding R&D even more, like microsoft? and develop the next gen input devices (after touchscreens))

dpcx• 14 years ago

Actually, I think that money is theirs. It's not part of their stock, it's cash that they have in reserve.

uptown• 14 years ago

"Why not invest in space exploration , electric cars, self-driving cars, medical devices, green energy"

Why should they? Just throwing money at something doesn't guarantee success, and deviating from a company's core competencies can become a distraction that drags down the parts of a company that are succeeding. The dividend puts money back into the hands of investors that can choose to either re-invest back into Apple stock, or invest in companies whose core competency is space exploration, electric cars, or some of the other areas that wouldn't be in Apple's expected domain.

droz• 14 years ago

Used to be that all Ball made was jars. Now they are sending successful probes out into space and helping the advancement of science.

maukdaddy3• 14 years ago

Maybe Apple doesn't feel they can be successful in areas other than consumer electronics. Trying to get into another line of business would be a HUGE distraction for management as well as the employees.

As for your green energy comment: I think Apple can do far more to promote green energy by being a customer and driving partners to produce better products than designing their own green business. For example, by buying a shitload of fuel cells for their datacenters, Apple funds Bloom's (or others') R&D efforts. Same with solar panels and other alternatives.

Apple-Guy• 14 years ago

Apple is already buying quite a lot of fuel cells AND solar panels for its datacenters.

dereg2• 14 years ago

Because Apple's duty is not to pursue community goals. Furthermore, they don't have the competence to make those sorts of investments. Apple is not a philanthropic organization, and it would be to everyone's detriment if they were to act like one.

celticninja• 14 years ago

>Apple has moved humanity forward

I would say this is quite a lot of hyperbole. They have refined what others have made but they have not moved humanity forward.

The Haber-Bosch process, Norman Borlaug, the space race, the production of a silicon chip etc have al moved humanity forward. Apple in comparison made some trinkets.

jiggy2011• 14 years ago

You could argue that they have moved humanity forward in the sense of setting the bar higher for the sort of experience that people expect with everyday things.

Of course they are not primarily a science/research company so they rely on "standing on the shoulders of giants".

adnam2• 14 years ago

>> Apple has moved humanity forward

Twaddle.

astrodust3• 14 years ago

Why are you so dismissive? Apple is not the only company that has done this.

Many companies had MP3 players prior to the iPod, but it was Apple's device that completely up-ended the music industry. Now people have access to entire libraries of music on their phone, and a store where they can buy even more.

Can you really say the situation would be better if Apple had blown out in the 1990s and we were at the mercy of Rio and RealPlayer?

InclinedPlane3• 14 years ago

Why not buy Applebee's or invest in ice hotels?

At some level it's necessary for a company as tight and as focused as Apple is to maintain a cohesion in its corporate expanse. They could easily spend their money on growing the company in a myriad of ways. They could invest in pharmaceuticals or unicycles, but the farther afield they get from their core competencies the less likely they are to succeed, and the less likely they are to remain a single, cohesive company.

At the end of the day the key question remains: what is Apple other than just a big ol' wad of money? If Apple is something other than just an amalgam of various profitable enterprises then they should keep on being that instead of trying to be something they're not.

glenra• 14 years ago

Apple has been successful so far with a very careful strategy: they focus on just a few markets at a time, only enter new markets if they have a big competitive advantage in those markets and only release new products if those products are a big improvement on the prior status quo.

If they were to spread management attention more thinly by starting separate divisions to do the sorts of entirely unrelated things you describe, Apple could easily turn into IBM or Microsoft. At its heart, Apple is a small company. The main way Apple helps all those other industries is by training engineers to think in the Apple way who then go off and found start-ups of their own. And by making lots of millionaires to fund those start-ups.

(Apple's also investing in some of those industries as a customer. For instance, they invest in "green energy" by buying solar panels for its new HQ building.)

therandomguy• 14 years ago

because Opportunity Cost

tomkinstinch• 14 years ago

I guess we can ask which other sectors they could disrupt.

Education seems like a perfect fit. They could start their own publishing house to author first-rate dynamic textbooks for the iPad. The content could be better than it is in current books, and it would sell iPads to boot.

furyofantares• 14 years ago

> but "phones" have not been the business of "Apple Computer" as well.

I don't think of the iPhone as a phone at all. It's a computer I always have with me.

Now, the main reason I always have it with me is because, rather than being an additional thing I need to carry in my pocket and always remember, it replaced a thing I need to carry in my pocket and always remember, but the "Phone" feature is the least used feature of my iPhone by far.

This is how Apple approached the iPhone, too. It was initially thought of as an iPod that had the sweet feature that it could replace your phone rather than require you to carry an extra device.

themichael• 14 years ago

This is a strategic shift to turn the apple shareholder basis from a hedgefund hotel to a dividend fund stock. Very smart as in a deflationary shock hedge fund liquidate profitable assets first. With the recent AAPL performance the stock is probably on top of the list. Most interesting fact of the call: "Apple had a record weekend" Tim Cook (referring to sales start of the new ipad.)

rmc2• 14 years ago

Why are Apple doing this?

I don't know much about stock and companies with money, but people on this thread are implying that Apple must get rid of it's cash? Why? Surely cash is good? Safety net? What if the sales plummet you don't go out of business, etc. etc.?

brown9-23• 14 years ago

Apple believes that it can offer a better return on that cash by giving some portion of it back to it's owners/shareholders than by continuing to hold it all in reserve. That's really all this is about.

WettowelReactor• 14 years ago

Thank you. This is the first time I have seen dividend explained in a matter that makes sense.

nikcub8• 14 years ago

the Wall St logic is that since Apple are not spending the cash and it is just sitting there and earning almost nothing then you are better off giving it back to investors to invest for themselves (buying t-bills isn't hard, we can do that ourselves).

the century old idea of stocks (and what buffet et al subscribe to) is about generating a yield from profits. the secondary effect is that now those types of investors will buy into Apple since it yields a dividend, like a good old blue chip stock should (which in-turn raises demand for the stock, which in-turn raises the share price - meaning the cash is being put to better use).

veyron2• 14 years ago

They were pressured by wall street to actually do something with the money.

I for one would have liked to see apple carry the cash balance. Sure they aren't making much from the cash, but I'm pretty sure there are better uses of the money. For example, why not buy a few suppliers?

arn2• 14 years ago

Are you suggesting there is no upper limit amount of cash that Apple could accumulate that it wouldn't make sense to distribute some of it?

Apple has hit that limit, where it has plenty of money to do all that (safety net) and more.

rmc2• 14 years ago

Are you suggesting there is no upper limit amount of cash that Apple could accumulate that it wouldn't make sense to distribute some of it?

No that sounds silly. But I don't know how much is enough and how much is too little. How do we know Apple has too much?

Porter_423• 14 years ago

What Apple will do with its cash has long been a topic for discussion, with analysts and investment specialists crying for a dividend

programminggeek• 14 years ago

I hate to say this is a bad idea, but dividends signal to the market that you have no better way to spend your money than just giving it back to investors to spend elsewhere.

Combining a stock buyback plan is smart at least because perhaps they can balance the two and counteract the dividend effect by buying up shares.

In reality Apple could probably just become a private company by buying back most/all the public shares, but I doubt they want to do that. There are obvious PR benefits to being the "most valuable" or "most profitable" public company in the world.

Also, as far as space travel and exploration, that makes no sense for Apple. Apple is not a company that invests huge in R&D projects that won't pay off for decades. It would ruin their incredible focus on what they are doing now and for the next 5 or so years. If you get too far out ahead, you build things the world isn't ready for yet or you stop executing on the here and now products and services.

Apple's still got a ton of room for potential growth on phones, pc's, and tv's. There are also a whole slew of "post pc" computing interfaces and devices that haven't even been dreamed up yet. Space travel would be a distraction.

ohashi• 14 years ago

What are their other options other than simply accumulating cash and not being able to spend it versus a dividend. Having a war chest is nice, but at a certain point it's being wasted if you could basically buy any company on earth tomorrow if you wanted.

Me1000• 14 years ago

Apple's cash reserves grew about $30B last year, they're announcing that they're going to spend $45B over the course of 3 years. Assuming the current cash reserve growth continues at the same rate, I really don't think the market will look at the dividends as not knowing how to spend their money...

astrodust3• 14 years ago

They know how to spend the money they have. The "problem" is that they keep making tons more.

ANH• 14 years ago

There are institutions, e.g. pension funds, that only invest in equities that provide a dividend. By offering a dividend, Apple is making its stock more widely available => more buyers => more shareholder value.

unreal37• 14 years ago

I laughed when I saw this in the press release. Anyone conservative enough not to buy a stock unless it provides a decent dividend would not buy Apple. Apple is not a value stock.

loceng• 14 years ago

That's how I saw it, however I think the remaining ~$40 billion is sufficient to continue a dominant position in where they excel. Things only evolve so fast, and unless they were planning on extending into specializing into other markets, there's only so much money that can be spent in one area before you'll potentially extend yourself into other areas too much and dilute expertise/focus. Apple's brand can't dilute too much either, though there are some areas I can see them being able to excel in - but they might not have the total foresight or incentives needed to maintain dominance in those areas, as experts already exist in those fields and they'd be competing for human resources - they do have ~$40 billion left + will surely make many more billions to use however they please.

beatle3• 14 years ago

I was right about Apple's plans to repurchase its own stock. I guess I was a little surprised by the quarterly dividend and the amount of money it plans to spend ($45b over 3 years).

Then I realized Apple earned $13b profit last quarter and it's only going to grow. $15b x 4 quarters = $60b PROFIT PER YEAR.

Not all of their profit will be used for the share buy back/dividend, but Apple can easily afford it and still have MORE cash (specially after you factor in cash inflow from its investing activities).

marbletiles2• 14 years ago

"In reality Apple could probably just become a private company by buying back most/all the public shares, but I doubt they want to do that."

They can't use the shareholders' money (which is what this is) to take themselves private. You can't buy something from someone with their own money.

EDIT: Any of these downvoters care to explain themselves? Apple can't buy back most/all of the public shares using this pile of cash, because it belongs to Apple, which belongs to its shareholders. (Even if they could afford to do it, which they can't)

ceejayoz5• 14 years ago

A public offering is the company saying "here is ownership in exchange for your money". A share buyback is the company saying "here is money in exchange for your ownership."

You're getting downvoted because it doesn't make sense for a company to be able to move in one direction, but not the other.

andylei2• 14 years ago

> dividends signal to the market that you have no better way to spend your money than just giving it back to investors to spend elsewhere

this is exactly what they're trying to signal because its true. what's wrong with that? they've been extremely profitable while not spending the $45 billion they're giving back to shareholders, and they can continue to be profitable without it.

> In reality Apple could probably just become a private company by buying back most/all the public shares

no it couldn't. it's market cap is 550B. it's cash reserve is 100B.

more generally, a company cannot buy itself because the shareholders actually own the cash the company holds. generally, if a company has $X dollars of cash reserves, then the market cap on that company would be > $X.

edit: a factor of 10

eugenegamma2• 14 years ago

You're off by a factor of 10 there but the claim is still true.

namsral2• 14 years ago

> the market cap on that company would be > $X.

Market cap != Value assets

The 550B market cap is the value of all outstanding shares of the company which is not equal to value of the combined assets like buildings and $$.

latch• 14 years ago

Not to mention the inherit problem of trying to corner a market. It would be hard to buy the shares back without prices being driven up....https://en.wikipedia.org/wiki/Silver_Thursday

padobson• 14 years ago

I just want to point out that the amount of cash it takes to take a public company private is not equal to Shares * Market Price.

It's actually Float Shares * Market Price.

This doesn't make much of a difference in Apple's case, because most of their market share is floating on the public market. Quick calculations:

932.37M Shares Outstanding x ~$600/share = $559.4B Mkt Cap

931.79M Float Shares x ~$600/share = $559.0B Price to go Private

$400mm, in this case, doesn't make much of a difference, but if you talk about this for other companies in the future, keep it in mind.

Source: http://finance.yahoo.com/q/ks?s=AAPL+Key+Statistics

beatle3• 14 years ago

Even with the dividend and share buyback plan, Apple is expected to continue to add significant amounts of money to its cash balance, which stood at $97.6 billion at the end of 2011.

If Apple consumes about $15 billion a year in cash for its stock buybacks and dividends, it is generating so much new cash from its business that its total cash balance at the end of fiscal 2013 could be around $180 billion, estimated Gene Munster, an analyst at Piper Jaffray.

http://www.nytimes.com/2012/03/20/technology/apple-to-use-ca...

chalst• 14 years ago

Both dividends and repurchasing are ways to distribute money to shareholders, and are from the point of view of the Miller--Modigiani theorem equivalent: from this abstract viewpoint, neither should affect the value of shares.

The differences are

1. Buybacks are usually more tax efficient, because with dividends, profits are realised at the point of sale;

2. Buybacks tend to be procyclical, since companies get a bargain when their shares are undervalued and overpay when they are overvalued. There is some evidence that overall, companies do not get good value for their shareholders from share buybacks. Also, many stock options have the effect that buybacks reward shareholders better than dividends.

I think a mixed dividend and buyback policy is wise. Apple shouldn't be hoarding the cash, and they shouldn't make poor value acquisitions.

To take themselves off the stock exchange, they would need to issue bonds valuing around $500 million, and so become a highly indebted company. This would be tricky, and it is not obvious why this would be in Apple's interest.

tnorthcutt• 14 years ago

they would need to issue bonds valuing around $500 million

$500 _billion_

eugenegamma2• 14 years ago

It isn't uncommon for management to partner up and take a company private when they are already large shareholders. In the case of Apple, this is not the case. Jobs owned more of Disney (almost 8% via the Pixar deal) than Apple on a percentage basis (less than 1%).

funkah• 14 years ago

> I hate to say this is a bad idea, but dividends signal to the market that you have no better way to spend your money than just giving it back to investors to spend elsewhere.

The ever-present notion that the leadership team of what is now one of the largest companies in the world has no real idea what they are doing is fascinating to me. Perhaps they deserve a bit of credit.

onemoreact• 14 years ago

Getting good returns from a 100 billion dollar investment is hard. Just as an idea of scale that's enough money to more than double world wide fusion research spending for the next 30 years. Suppose they started down that path and 20 years from now started building useful and highly profitable fusion reactors that beat coal power plants. Now what if that failed. Measuring the risk / benefit curve on such an investment is hard. But, Apple could afford to fund 5 other projects on that scale without touching their cash horde.

IMO, Apple starting down the dividend path is simply the only reasonable course when faced with that sort of cash flow.

ajross4• 14 years ago

They're riding a hit. I know this borders on heresy here, but the iPhone/iPad ecosystem is really just one very good product that hit an amazingly lucrative sweet spot in an emerging market. They're printing money with it because they got there first and best (c.f. Microsoft), not because their "leadership team" is reliably able to produce hit after hit.

Even Jobs only really got one money-printing-quality hit like this in his career. Most of "his" other stuff was great, sure, but mixed with equally great competitors (Pixar -- Toy Story was huge, but so was Titanic) or never managed to break into the market due to bad timing or market conditions (Mac OS).

Seriously: if all that Apple can do with that $100B is produce a top flight movie studio or a distant-second competitor to an established monopoly, it's not enough. They should give the cash back instead.

monochromatic• 14 years ago

The stock buyback sends exactly the same not-great message that the dividends do.

philwelch2• 14 years ago

Without either dividends or a stock buyback plan, stocks are no more an investment than baseball cards. The point of not paying dividends is so you can reinvest your cash to increase the dividends you can pay later, and Apple's dividend is so low that they're clearly planning to reinvest the vast majority of their cash even with these dividends.

I don't get the criticism that Apple has no better way to spend its money. It's been building a cash stockpile for years, so obviously they've had this "problem" for years. They're a public company that has to report the size of their cash stockpile every quarter; having a growing cash stockpile already signals they haven't found a way to somehow reinvest their cash. Paying a dividend, especially such a small one, hardly lets the cat out of the bag at this point.

Furthermore, interest rates are still rock-bottom. If Apple suddenly needed a whole bunch of cash to invest, it wouldn't be at all difficult for them to borrow at much, much lower rates than their rate of return. It might be more risky and costly than simply spending a war chest, which is a good reason to keep 55 billion around (plus whatever they pull in over the next three years) while distributing the other 45 billion.

ValG• 14 years ago

Well put, I think that Apple has been working on this for months and they have a pretty good idea of what they're doing. They have worked out a very conservative amount of money to give back, and still have plenty to keep in the warchest for any R&D or M&A. With $55 billion around, they could outbid Microsoft on any acquisitions that they want (I think MSFT has close to $40 in their chest, but don't quote me on that). And before you mention that Apple is not known for acquisitions, they're also not known for buy-backs and dividends; Tim Cook might be shaking things up how Apple is doing this from a business perspective

aero142• 14 years ago

When I collect all of the Tops '88 baseball cards, I don't suddenly own the NY Yankees. Stocks have fundamental value beyond novelty.

orky56• 14 years ago

It's pretty simple when you think about it. Apple has a certain hurdle rate for their projects that is extremely high, when compared to other companies. The only projects that can make it are ones that can draw on their existing resources. For them to go into something completely new would aberrate from their investment philosophy that has made them the most valuable company. On the new product front, I have more confidence in Apple knowing that they plan to think things through rather than announce something just for the sake of spending their hard earned cash.

beambot2• 14 years ago

I disagree with your assessment of dividends vs. share buybacks. My opinion mirrors that of Mark Cuban. A few choice quotes from [1]:

Dividends offer _true_ returns:

They send a message to shareholders that you want them to stay as shareholders and are rewarding them for their committment to your company. Its a reminder to shareholders that the business investments you have made have actually worked and the reward is that cash can be returned to shareholders . That profits are more important to shareholders over the long term than trying to convince wall street to increase your PE [via buybacks].

Meanwhile... buybacks just perpetuate insider dilution:

Companies continuously issue new shares to their managers without asking their existing shareholders. Those managers then leak that stock to the market a little at a time. It’s unlimited dilution of existing shareholders’ stakes, death by a thousand dilutive cuts. If that isn’t a scam, I don’t know what is. Individual shareholders have nothing but the chance to sell it to the next sucker. A mutual fund buys one million shares of a company with your and your coworkers’ money. You own 1 percent of the company. Six weeks later you own less, and all that money went to insiders, not to the company. And no one asked your permission, and you didn’t know you got diluted or by how much till 90 days after the fact if that soon.

[1] http://blogmaverick.com/2006/07/22/executive-pay-and-stock-p...

karamazov3• 14 years ago

This is an interesting point of view, but the article you linked to misses a fundamental point of the "golden parachute" offered to CEO's: if a leading executive messes up, you want to incentivize them to come forward, not to cover up their mistake for fear of losing their jobs.

Is a golden parachute ideal for this? Perhaps not, as it does introduce some strange incentives overall; but I'm not aware of anything better.

mjwalshe3• 14 years ago

Yes your right apart from the endge cases of Investment trusts where you can use buy backs and issusing shares to manage the discount/premium.

nandemo• 14 years ago

The quote describes stock grants and stock options for managers (and employees). That's orthogonal to the question of dividends vs buybacks.

An individual investor might prefer dividends for tax reasons, while a mutual fund might prefer buybacks. But other things being equal, both sorts of investors don't want unnecessary dilution.

mjwalshe3• 14 years ago

Do they not have to pass a motion at the AGM to disallow premetion rights to issue new shares?

ScotterC• 14 years ago

The key part about offering dividends is you start to attract the people who only buy stocks that pay dividends. It's a substantial category.

brudgers5• 14 years ago

>"dividends signal to the market that you have no better way to spend your money than just giving it back to investors to spend elsewhere."

In Apple's case, what it signals may be a little worse - i.e. that they have given up on trying to find those better ways despite having had several years to work on it as the cash accumulated.

If Apple had announced dividends a year ago, before Jobs' death, it would look like Apple had a long term vision - and there was certainly opportunity to have provided dividends.

More importantly, there was opportunity to spend the money. If Apple couldn't figure out how to make a dent in $30 billion or $50 billion or $70 billion, it doesn't look like their problem has gotten any easier.

zukhan• 14 years ago

Relevant bit from pg's keynote:

"I was talking recently to someone who knew Apple well, and I asked him if the people now running the company would be able to keep creating new things the way Apple had under Steve Jobs. His answer was simply "no." I already feared that would be the answer. I asked more to see how he'd qualify it. But he didn't qualify it at all. No, there will be no more great new stuff beyond whatever's currently in the pipeline."

Looks like they probably won't be dreaming up innovative devices anyway unless a new Steve Jobs takes over.

Schwolop• 14 years ago

Despite the fact that you're writing on a website written by one of the two people whose opinions you're quoting, I really don't think extrapolating the future based on two opinions is going to fly here.

debacle• 14 years ago

It makes sense - this isn't a dividend to lure investors, it's an effort to reduce their cash reserves to a more sane level. There's nothing out there right now that Apple has use for that they can't buy, so why not reduce their reserves a bit?

outside1234• 14 years ago

The best part of this is that it is leadership for the rest of S&P 500 to start paying a dividend when they can't effectively invest parts of their income stream.

The alternative is something like Microsoft, which couldn't invest the money but still tried with all sorts of terrible acquisitions. This is a better alternative for shareholders.

Osiris• 14 years ago

With $100B in the bank, I keep thinking that Apple could do a lot more to disrupt of lot of industries.

They could afford to build an entirely new wireless carrier, from scratch (I understand spectrum might be an issue). They could create an entire newly kind of music label that redefines how artists are compensated and how labels make money. Or they could create their own new book publishing company that breaks with the traditions of the big publishers to make e-Books the focus and more affordable. They could probably buy up most of their entire supply chain.

So they must have good reasons for not wanting to use those funds to distrupt those other industries more than they already have. I'm sure they don't want to get out of their core competencies, but setting up subsidiary businesses would seem like a good way to get what they want.

Cushman2• 14 years ago

It's the first one that excites me. Apple could completely upend the wireless market by selling data service at cost as a loss-leader for their devices-- or even building lifetime unlimited data into the price of every Apple device. Compared to the cost of building the network, what's $100 million on lobbying to nab some free spectrum?

Alas, I think the current arrangement is working too well for Apple to want to take that kind of insane risk. Shame.

kytmizuno• 14 years ago

I think spectrum is quite a bit more expensive than that. Qualcomm recently sold a spectrum block to ATT for nearly $2 billion. Granted it was probably a more desirable block (lower 700 Mhz) than most others.

drawkbox2• 14 years ago

The only time Apple had a dividend before was the time when Jobs was not there and innovation left (87-mid 90s). Let's hope this does not signal that.

As a shareholder I'd preferred if they just kept and invested the money in new products. Why not use that money to speed up the real Apple TV? Screen tech? Storage? There are still lots of advancements left in handheld and this levels the playing field a bit. Apple hoarding cash was intimidating to competitors.

Jobs would not have done this. It was the first thing they did when he left in the late '80s and the first thing he ended when taking back over in the mid 90's.

WiseWeasel• 14 years ago

Apple has only become this profitable by abandoning their early days' Not Invented Here syndrome, when they used to design and build their products from soup to nuts, and instead riding the wave of innovation by specialized third party suppliers with off-the-shelf solutions. They have long discovered that it's much less risky and much more profitable to let others do the fundamental component development work, and focus on integration of third party solutions, with occasional guidance towards meeting their goals. Even for a company the size of Apple, it can be difficult to predict where the industry will go, and a few mistakes can leave you dependent on some expensive proprietary technology dead-end while the rest of the industry passes you by with lower prices and superior functionality. It's much cheaper and just as effective against competitors to tie up the world's supply of DRAM than to build a foundry and make all those chips yourself.

drawkbox2• 14 years ago

True but it is a better path for many things. PowerPC sucked, once they went *nix and Intel it blew up. ARM and flash memory for devices, they push that as well that is not just reserved for Apple's use. Also OpenGL ES won the battle on mobile quietly due to Apple's support of Khronos and the mobile markets they created. Webkit, html5, canvas and more are direct results of their investment and extra cash. I hope that continues. LLVM is another area they have taken to another level.

There certainly isn't anything wrong with making better what is out there and at the same time creating the basis for other products (i.e. Chromium from WebKit) so you really own more of the market as a whole and the direction it takes.

As a game developer, the way OpenGL ES flat out won on devices with no real challenge from Microsoft on DirectX is amazing on that front alone. I'd say whatever they were doing with their money since the mid-90's was right.

allwein• 14 years ago

Everyone here is missing the real goal of this dividend: removing uncertainty;

In much the same way that the stock was held back while Steve was alive because there was so much uncertainty about his health, but since his death the stock has been on a $200+ rampage. There's been speculation about what Apple might do with it's cash hoard for so long and the uncertainty has always been weighing on some investor's minds. By actually doing something with some of it, they've laid a path and removed the uncertainty.

Investor psychology is a really crazy thing.

xefer• 14 years ago

It will be interesting to know how much the dividend is. Owners of Apple shares can of course take the money and use it to buy Apple products. It's as if one benefit of being an owner is, you get company a discount.

tonyx• 14 years ago

My intuition doesn't feel good about this. Whatever Tim Cook says, if apple draw attention away from product innovation into optimizing for financial markets and pleasing shortsighted loyalty-less public market investors, it would no longer be the Apple that we have come to know over the past decade.

w1ntermute• 14 years ago

Although it's not part of their core business, from the news that's leaked about Steve Jobs' discussions with a CBS exec who refused to license CBS content because he felt he would be cannibalizing their profits, perhaps Apple could purchase one of these stations to spur the adoption of a new model for TV watching. It might cost them a pretty penny at first, but if it forces the other broadcasters to fall in line, it would be worth it.

Another obvious "lateral" purchase would be a cellular company. It doesn't make sense to keep pandering to the desires of the likes of AT&T and Verizon (4 GB data limit on LTE iPad WTF?) when there's so much more potential that could be realized with a good data plan for iDevices.

grandalf• 14 years ago

I imagine both of these would have been seriously considered if it weren't for antitrust concerns.

laconian• 14 years ago

Uh oh. I remember when Microsoft announced a similar program. That really kicked off the malaise that MSFT's in now.

wildster• 14 years ago

Apple should buy a US mobile carrier and do it right.

joelmaat• 14 years ago

Buy at the market peak. Genius.

chj• 14 years ago

iOS still sucks in many ways. I hope they are not content with themselves. By the way, why not reduce the share they get from app developers if they are so rich now? Apparently it would be in better hands.

velus2• 14 years ago

So instead of increasing employee wages they decide to piss the money away and give it to the Wall Street fat cats...

velus2• 14 years ago

And this for people who don't understand how stock buyback "works"

The stock purchased is "canceled". Yes, canceled.

So if a company has no operation but 100 billion in cash, after a stock buyback of 100 billion, the company is worth $0. It's a super bad deal for the employees who sees nothing, but great for Wall Street traders

Apple Announces Plans to Initiate Dividend and Share Repurchase Program

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