Apple Announces Plans to Initiate Dividend and Share Repurchase Program

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).

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)

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

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.

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.

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.

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...

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.

"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.

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.

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.

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.

Twaddle.

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.

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.)

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.

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.

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

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.

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.

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).

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