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Comment by logn | Hacker News Reader

I find it annoying when companies who don't have a need to invest all profits into themselves and have little chance of being acquired don't pay dividends. Otherwise what's the point of owning a stock? To resell it at a higher price? That's fine I guess but you're offering no value or investment opportunity to long-term investors. Profiting in this case ultimately requires a fool willing to overpay.

Edit: or if there's no fool, the company could buy back shares, but at that point you should seriously consider just paying a dividend.

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If you don't agree with the financial management of a company, then don't invest in it.

Dividends are only one way to get value out of cash reserves in a company. I'd argue that if the company knows what the hell it's doing, handing away the fuel that helps it to execute on its strategy (cash) is the worst thing to do.

have you ever heard of the term "activist investor"?

Not to mention the whole "double taxation" thing. Dividends aren't exactly an efficient way to return value.

It's implicit that they think Apple does not know how to reinvest that cash in a way that will provide a return that is commensurate with the risk of Apple stock. I don't think that is a stretch, given how much they have. If my cash is sitting in a bank account at Apple my investment is exposed to Apple's risk, I'm going to be upset about it.

If they can't invest it in a way that covers their cost of capital, it is their duty to pay it out, not to sit on it.

I just don't get it. If you think that Apple exposes you to too much risk then don't invest in them.

it is their duty to pay it out

How so? Did they commit to giving out dividends as a part of your purchase of their stock? Are they siphoning the cash out of the company to avoid giving shareholders value?

Sitting on cash has been an Apple strategy for a very long time, even before Jobs came back. How have they deceived shareholders by continuing with it?

Not investing the money at a risk-adjusted profitable return is the same thing as taking money from shareholders. Think about it this way. If there was one owner in the company, and the CEO just couldn't figure out a way to invest the company's cash at a profitable rate (again, risk-adjusted), what would the owner do? He'd take it out of the company and invest it elsewhere or just buy something - because he owns the company and it's his money.

When you have multiple shareholders, the concept is the same, it's just harder to hold management's feet to the fire.

This is different than "sitting on cash" as a strategic decision. It is wise to do so - there might be investment opportunities or hard times down the road. But we are talking about excess cash - cash beyond the level that is reasonable to sit on for strategic purposes. To sit on excess cash (which is admittedly a judgement call) is to hold your shareholders' money hostage in an unprofitable manner. Given how much cash Apple has, I don't think it's unreasonable for shareholders to grumble a bit.

Except that Tim Cook has said on shareholder calls that they have more cash than they know what to do with. At that point they should distribute more to shareholders.

Know what to do with at the moment is not the same as having no idea what they would ever do with it so should give it so someone.

Having cash reserves sor which you have no immediate plans is itself a strategy that may have extra benefits, like it or not.

Apple is paying a dividend. I wouldn't worry too much about how much money they are sitting on. Having very large cash reserves allows them to buy companies that have technology they want to integrate into their products and keep it away from competitors. It has allowed them to pre-pay for production of products, manufacturing equipment and other tooling that ensures they meet market demand for new products while keeping that same tooling out of the hands of competitors etc. One of my clients hired fifty new employees in one month last year because Apple pre-paid for a supply of chips and the company needed to ramp up production. They couldn't have moved that fast without the infusion of cash.

I agree with you for the most part, but I don't think profiting requires a fool willing to overpay. If you bought Google stock at the IPO because you thought they would be a dominant player on the Internet, you will have made a 600% return if you sold today. That's not to say that the person buying today is overpaying for the stock - they just think that Google will continue to grow in the future.

Apple's spending $10B this year in CapEx. Some of that is for datacenters and some of that is for the new headquarters and stores.

That's $2B more, or about %25 more of the total than last year. If you just look at the expenditures on production (Eg: buying the equipment used to make their products) it seems to have grown ~%33 in the past year.)

It could easily be the case that Apple spends %10-%20 of its cash each year on these efforts, as it needs to scale its business at double digit rates.

Having 10X your annual CapEx spending in the bank doesn't seem exactly irresponsible. Quite the opposite.

You seem to be operating without a deep understanding of how the economics of companies and stocks work. Each dollar in cash adds a dollar to the value of the stock, assuming no multiple. So, someone paying an additional dollar for that stock is not overpaying, and thus is not considered a "fool".

Companies are valued by people like Buffett on their return on cash, or return on equity, and other such measures. Do the analysis for Apple and see what those figures are and then compare them to other companies like Microsoft, Amazon and Google.

I think you'll find Apple is being well managed financially, and the value delivered to investors by these current strategies is quite good, as represented by these standard metrics (that require more research than the average journalist or investor will likely do, but that value and growth investors regularly do.)

Thus you invocation of the "greater fool" theory is not supported, and I challenge would be completely undermined if you calculated these metrics.

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