File this under "problems you'll never have": Apple's corporate wallet is stuffed with nearly $66 billion. And as that nest egg grows, so do questions about what Jobs & Co. plans to do with all that ready mazuma. Announcing its financial results for its second fiscal 2011 quarter, Apple said that its cash plus short-term and …
Dividends and buybacks
Historically, investors have regarded dividends and buybacks as admissions that the company did not know how to use the cash effectively. This is considered as a terrible failure.
Look at RIM: they bought back their stock last year... You would think this indicates confidence, and that market force should make the stock prize rise... But that has very much not been the case.
Regard dividends and buyback as a sign that management need to raise the share price to ensure that their options are suitably remunerative.
Dividends are what smart investors are buying the shares for. You only expect the company to re-invest 100% of the profit when the company is starting up.
Smart investors expect to realise a return on their investment without having to dilute their stock holding.
Why Pay Dividends?
Apple needs to pay dividends, because they have no ideas. Their cash flows have exceeded their business ability. When this happens, smart firms pay dividends rather than invest the money in random other companies. This is because the investors make their decisions based on risk and return and therefore firms should not be involved with anything other than their own operations.
As you can see, instead they have been investing in long term securities. Investors could invest in those same securities by themselves if they so desired and Apple has no business being involved with them.
Except Apple is out of ideas, so they have no operations to invest the money in.
This is also a side effect of the 50% brand premium they charge. Their costs never come close to their revenues.
Sorry, what? "Dividends are what smart investors are buying the shares for." No. Smart investors look for stock that has good long term growth forecasts.
"You only expect the company to re-invest 100% of the profit when the company is starting up." So how do they pay the top talent? How do they come up with the next iPad?
"Smart investors expect to realise a return on their investment without having to dilute their stock holding." No, that's someone that wants their cake and wants to eat it too.
Smart investors will know the difference between equity that promises capital growth and equity that provides regular income via dividend and invest accordingly.
I'd be nice if Apple bought T-Mobile so those of us in the US would still have an alternate GSM option.
They could buy T-Mobile AND Sprint to battle the Verizon/ATT duopoly.
Get it right
ExxonMobil (no space) or Exxon Mobil Corporation (space)... Certainly not Exxon Mobile
Get it right?
Get it right
Because great people busted their guts to build a fine company and great people lost their lives on the job so we can have the pleasure of filling our tanks with gasoline.
Can someone answer me a question?
I'm a bit of a stock market/shares newbie, so can someone please explain to me why Apple shares are worth as much as they are given that they don't pay any dividends? Why would anyone want to hold them if they don't pay anything back to the holder? Am I missing something about how the US stock market works?
It's all about long term return on investment. (Emphasis on long term)
The laws of supply and demand dictacte that as demand for a finite resource increases, so the price will rise.
Since there are only a finite number of shares knocking around for Apple stock, and because Apple are a successful company, the price of each share rises. Thus, people want to get in, betting on the fact that Apple will continue to be successful and therefore the value of their stockholding will increase.
Think about it ... if you'd bought $1000 of Apple stock in 2001 ($22/share on January 18th 2001), it would now be worth around $15.940 ($350.7/share today) .. not a bad ROI.
(Wished I'd invested all those years ago now ...)
Q - "can someone please explain to me why Apple shares are worth as much as they are given that they don't pay any dividends?"
A - It is still an investment, it is just an investment that wont payout until you sell. For example if I bought a few pounds of gold in 1994 and buried it in my back yard until last month when I went to a broker and sold it at todays rate I would have received no money up until the point I sold the gold back onto the market. Companies have a choice as to whether or not they pay dividends, most do but it is not the only way of doing things...
Also, by keeping the cash Apple is boosting the value of their share price, all that money it has in the bank (or invested) is factored into the share price
I two words Capital Growth. Investors buy shares in companies such as Apple on the basis that they are growth stocks. The principle is that the money freed up by not paying dividends can be invested to grow faster. It was an approach taken by many US technology stocks. Of course how this fits with a company sitting on a huge cash pile is another question. Should Apple be unable to maintain the momentum of its growth and it can't find anything useful to do with the money, then the stock price will stall, fall and there will be a clamour to return these funds.
It's storing up a problem for the future - it's difficult to see how Apple can continue to grow at the same rate and many investors will count on getting out before any share price fall. However, there are always more losers than gainers.
That is all.
Re: Can someone answer me a question?
Simple, the value of the stock goes up so if/when you cash it in, you have made money.
Re: Can someone answer me a question?
As far as I am aware, dividends are paid back to investors as a 'thank you' for owning the companys shares but not all companies do this.
title ye not
I' m not expert, but my thoughts lie with it being a long term investment, but there in lies the chicken and egg.
As the company performs well, its stock becomes more lucrative inviting people to purchase more and more shares in the company.
The more shares you buy, the more your lock in with Apple, given they pay no dividends. So if you want to get your money back, your only option is to sell shares.
If your a big shareholder and you're seen to be selling up, it makes other investors jittery and the too start to get nervous about their money.
the more people get nervous, then the share price starts to decline.
Id imagine its a similar instance to a 'run on the bank'
people can only get their money back if they sell shares, but if they sell shares, they could turnabout an end of the $40 share price and potentially apple itself.
why you'd want them
because they're valuable. as i look now... $350 a share.
if I'd had $10,000 in 1983 and bought shares with it then i'd now have $2.2 mil worth.
Here's one answer
Shares are worth what the market estimates a company is worth, divided by the number of shares. That estimation is based on assets, liabilities, profits, future growth, and other factors. Most tech stocks are worth about twenty times their earnings, plus their cash pile, modified by what the market thinks future earnings will look like.
Dividends are just one way for an investor to make money. The other is for the value of the stock to increase. Stock increases are generally considered better, because capital gains tend to pay fewer taxes than income. I'd get to keep more money if I sell a share at $1 more than I paid for it, rather than have that share pay me a $1 dividend.
So, at least in theory, a dollar is worth more sitting in Apple's bank than it is paid out in a dividend. But ideally, Apple would figure out a way to invest that dollar to create even more company growth.
They are bought on the basis that their value will keep increasing. Which they have.
I can't find a link right now, but I believe that Jobs has pretty much said that Apple is only interested in long-term investors, which is what you would have to be to make decent money from buying and then selling Apple shares.
I'm speculating, but that may be another reason for not paying out dividends; Jobs is philosophically opposed to short term stockholders who would expect to make money simply by owning Apple shares.
People usually buy, sell and hold shares on the principle that what you sell them for is more than what you buy them for (although not always, if you are short selling it's the reverse and a bit more confusing).
Share price is more an indication of the market's perceived value of a company rather than how much an investor will get back in return. Additionally share price is affected by how many shares exist, which is another reason AAPL is up at $350 and MSFT at $25, despite them being similar sized companies (or rather Microsoft has many more employees and larger revenue).
Dividends are not usually the primary way investors make their money. By my calculations if I invested $10000 in Microsoft a year ago I would have made $186 in dividends and lost $2000 in share value. The same purchase of AAPL would have made me $2600 in the same period. I know which one I'd go for, even without a dividend.
Apple needs to lower the cost of their macs. Even though they're better than running windoze, they are way over priced.
I have a macbook pro, it is the best Windows 7 machine I have ever bought.
Go price up a new i7 macbook pro and then spec up the equivalent machine with someone else (say Alienware):
Macbook Pro 15", anti glare, 2.2Ghz quad i7 and 8Gb ram, 750Gb: £2128
Alienware 15.4", 2.13Ghz i7, 8Gb, 500Gb Drive, no antiglare option : £2148.
Not sure if the Alienware i7 is quad core or not, it isn't clear.
If you want a high end laptop then Apple are no more expensive. Admittedly, if you just want a bog standard laptop with no thrills then don't bother, Apple do indeed cost too much then.
Blimey - and all gained by hyping their relatively ordinary products up to the hilt to gullible folk. Just my opinion, y' understand...........................
Plastic tat sells. Who knew?
If that's all it was, plenty of other companies would be doing just as well.
When you invest in a div paying company you get back a portion of your investment with each div which lowers your exposure. With Apple the only way to reduce your exposure is to sell a portion of your stake or get out entirely. Many investors will remain 100% exposed as who would sell a rising stock?
Trouble is, if Apple coughs and a few investors get nervous it could turn into a snowball crash much more easily than with a div paying company. People will stick with some level of capital value decrease if the company has proven a good payer over time and a chunk of their exposure has been mitigated. BP's share price for example didn't crash that greatly because investors know the good times will return and the fat payouts will resume, they lost about a third and have recovered a good lump of that already.
If Apple screw up their market cap could crash to not much over their cash pot very easily indeed. Thus they are a bit stuck, they need to go on being tightwads because if they didn't have a healthy reserve the emporers clothes could begin to look very slight indeed. A run on a companies stock can only ever go as far as their asset value. When RBS went titsup they lost 98% or so of their value because the cupboard was bare and their share price has barely begun to recover now despite being well on the way back to to profit. The sums lost by BP and RBS triggering the runs on their shares were similar, around £40bn. Apples bulging wallet limits the extent of a run on them.
On the whole I think their refusal to pay any dividend is dangerous , in increases the liklihood of a run on their share but at the same time limits the damage such a run would do.
@ Robert Long 1
"plastic tat sells."
Rather beautiful aluminium and glass tat, actually. The alternative is too horrid and pedestrian to contemplate, frankly.
Re: who would sell a rising stock?
It's never a wrong time to take a profit.
If you hold the stock, you should ask yourself: would you *buy* the stock at that price today? If not, then you should sell.
Does nobody remember the dot-com crash? Smart investors quietly sold out a few years before. The rest got burned.
Next Logical Step
The next logical step for Apple is to dive into gaming. They have always wanted to make the Mac a gaming platform. They would first release the console on iOS but have easily ported games on the Mac ala "Game Center for Mac OS". In order to do this they will need three things:
1.) A Mac OS that borrows heavily on the iOS platform.
2.) Enough reserve cash to begin producing a console at a loss
3.) A library of games to introduce on the new console (Optional but preferred)
Apple has the second part, and Mac OS Lion is around the corner. I think that Lion will preview the integration but what comes after Lion will be an all new OS that integrates the two seamlessly. By this time the next console generation will be set in motion.
As for the library of games, they are building one. All they need is a franchise. Such as Nintendo or Sega like franchise. Perhaps even buying out Disney Interactive. Apple has its roots in Atari. Afterall it was Steve Jobs and Steve Wozniac that programmed games for Atari while in college. Ever hear of Pong?
Jobs and Woz created Pong? That's a new one....
<quote>After all it was Steve Jobs and Steve Wozniac that programmed games for Atari while in college. Ever hear of Pong?</quote>
An audacious effort at revisionism from the fanboi above - 8/10.
Apple has always hoarded cash
Apple has always had monumental cash reserves. Alas, that was part of the problem that lead to Apple's problems in the 1980s. I remember when I sold Macs in the late 1980s, Apple had a cooperative deal with GMAC (I think it was GMAC) for financing and leasing computers. It added considerably to the cost of Macs (giving Microsoft and IBM an opening) but helped them acquire a huge cash hoard. Even as Apple was supposedly "dying," their cash reserves kept growing. This was one of the reasons behind Michael Dell's remarks about how he'd "liquidate the company and give all the stockholders their money back." There was a LOT of money to give back.
At December 1997 as Steve put in the first quarter of his effort to pull the company out from a power dive, Apple had $1.2billion of cash - BUT it also had $939 million of long term debt.
If Apple had been shuttered at that point the shareholders would have probably got nothing at all.
Chump change you can believe in
If they wanted to, they could be nice and lift entire nations out of poverty.
Oh, sorry, wrong forum. What I mean is, "Aye, here be a chance fer corp'rate vengeance. Run 'em through and slick the planks with their maggoty guts."
The against (dividends) argument
The guy in the link is saying wallstreet investors are easily duped by headlines reporting cash in the bank (instead of looking at profit and growth). Pretty likely given that duping dumb people into overvaluing a product is Apples speciality.
They are building a monument.
For the impending...
Why should Apple put their cash at risk when as a reward the leftist government will take an even greater percentage if they are successful?
We are building a religion
We are building it bigger
We are widening the corridors
And adding more lanes
We are building a religion
A limited edition
We are now accepting callers
For these pendant key chains
Why do they have $60 billion in the bank?
Do you guys even read the news before you write these articles?
Apple just used their cash hoard to buy up long term component contracts.
Price: $11 Billion
The joy of watching your clueless competitors flounder around looking for competitive component pricing?
That's why you keep $60 billion in the bank.
Apple's 10-Q form filing with the U.S. Securities and Exchange Commission has revealed the largest sequential increase in purchase commitments for a March quarter to $11 billion, as iPad 2 production ramps up.
$11B in purchases planned as iPad 2 ramps up, iPhone 5 rumors heat up
The "10-Q Tidbits" were highlighted this week by analyst Katy Huberty with Morgan Stanley. The financial document shows that Apple's purchase commitments increased 39 percent quarter over quarter by the end of the March quarter.
Apple plans to spend $11 billion on components and other purchases in the March quarter, up from $7.9 billion at the end of 2010. That sequential increase is a record for a March quarter.
missed the point
They've not spent $11bn in advance, they've committed to buy $11bn of components at prices they've agreed today.
Most of that $11bn is probably from operating cashflow.
Given MS gave its cash to Nokia, http://www.cmswire.com/cms/enterprise-20/applenokia-report-earnings-a-game-of-two-halves-010961.php, how about Apple gives its cash to Motorola... keep the old guys ticking over, and Apple has done bizness with M once or twice (cringes at memory)
"what Jobs & Co. plans to do with all that ready mazuma"
buy Google ; )
(or Facebook. Or wait till next year and buy both...)
Jobsian Mind Tricks
"Jobs was reported to have told moneymen inquiring about dividends: "Which would you rather have us be? A company with our stock price, and $40 billion in the bank? Or a company with our stock price and no cash in the bank?""
That should be filed under Jobsian Mind Tricks such as, "These aren't the $40 billion return on investment you're looking for."
After which Lord Jobs said unto his flock, "He can go about his business."
And his flock did say, "You can go about your business. Move along... move along."
Maybe they're saving for something special.
In an unrelated question, does anyone know how much Microsoft is valued at these days?
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