My problem with this, and all other stories on the same theme, is "Why?" Why does Apple NEED to do anything with its cash reserves?
The story says: "Last month Mr Cook admitted that the firm has more cash than it needs for its operations. It’s a nice problem to have. The obvious solution would be to give cash back to shareholders, either via dividends or share buybacks." They claim having more cash than they need as a problem, and then spend 5 paragraphs detailing solutions, without further explaining WHY it's a problem.
Speaking as an (extremely minor) shareholder, I have no desire for dividends or anything else. My AAPL portfolio has gained 100% in 2 years, that's good enough for me.
Why does Apple NEED to do anything with its cash reserves?
Because the board members have a fiduciary duty towards their shareholders. If the company literally has more cash than it knows what to do with, then it is imposing the opportunity cost of that non-use upon its shareholders. Either invest it in something with a high risk/reward potential (and accept the consequences if that investment fails), or return it to shareholders in the form of dividends or a share buyback. If the cash is just sitting in the bank doing nothing then you're paying Apple's management a fat fee for something you could equally well be doing yourself. Large, unused piles of cash are a drag upon the economy.
Because the board members have a fiduciary duty towards their shareholders.
Of course, if the board believes that holding the cash maximizes long-term shareholder value (e.g., by enabling acquisitions or capital expenditures down the road, or serving as a buffer in a recession), holding cash satisfies their fiduciary duty.
> Because the board members have a fiduciary duty towards their shareholders.
Which isn't an issue if the board believes this cash pile is a good tool to maximize long-term shareholder value in the long run, they're in the clear.
> If the company literally has more cash than it knows what to do with
You're deeply misreading Cook's statement. He said Apple does not need its cash reserves for its operations, meaning for day-to-day expenses and management.
That does not even remotely come close to meaning they have more cash than they know what to do with.
Past a certain point, the reasonableness of the board's belief is open to question, and that's what's going on here. The cash pile has been building long enough that some investors and commentators are skeptical about whether Apple has a long-term plan, or is suffering from a lack of imagination.
Because without dividends that gain is entirely speculative. Over the next two years it could triple in value, or it could take a nosedive. There's no fundamentals backing up the value of AAPL shares. Yes, Apple is crazy profitable. But ask yourself: what's in it for the investors if they're not sharing that cash?
Regular dividends provide a fundamental baseline in the value of a stock, and market pressures typically force movement of stock price to normalize the dividend yield. It provides stability for stocks no longer driven by growth and speculation.
AAPL has been a massive growth story for the last decade. But as with any growth story, at some point fundamental limits are reached. I'm not saying that has happened now, but when it does (as it did for Microsoft), Apple will be forced to choose between issuing dividends or watching their share price fall (and, worst case scenario, spiral) as growth speculators sell off their portfolios.
At some point it becomes a liability. The reason is that it can be used to 'take over' Apple. It works like this:
Company has a stock price of $X and lets say a billion outstanding shares. Giving it a 'market cap' of $X * 1e9 or $x billion dollars. It has cash or cash equivalents of $Y billion.
If you try to buy control of the company by buying up all the shares is costs more than $X billion because as you buy shares the price will go up. But you can mitigate that by borrowing up to Y billion dollars that you will 'pay back' by looting the coffers and paying it back.
Now as long as your share price stays high, this is not a huge threat, but there are many, many examples of high tech companies whose share price was very high at one point, and nearly worthless a short while later. Look at Sun as an example $60 -> $1 in the course of about 4 years. So if you price plummets precipitously and you can't 'get rid' of your excess cash, well you end up on some corporate raider's dessert plate.
But corporate raiding aside (while it makes for great drama its not the best reason) the money in 'cash' isn't doing anything for Apple. Its not researching some useful thing, optimizing some operational expense, reducing risk or eliminating barriers to future growth.
Sure having "enough" cash is very important, but having "too much" can be dangerous, foolish, or both.
I am also an apple investor. If they have $50B of cash they have no use for, then they are forcing me to be invested in government bonds. I'd rather have the money myself, and invest it in something that gets better than a .5% annual return. Using the dividend to buy more Apple stock would be better than the current situation.
They don't need those for immediate ops right now, but having tens of billions readily available is a great chip when discussing deal with manufacturers. It means you're able to put billions on the table upfront at a financial moment's notice. Apple's billions in the bank are a major asset in their negotiations.
I wasn't stretching anything. Tim Cook said Apple has "more than we need to run the company." Running the company requires having cash for immediate, future, foreseeable and non-foreseeable events. "More than we need" means there is some that there is no need, or "no use".
They NEED to do something with the cash reserve because they are a publicly traded company, and investors are greedy. While it would never realistically happen, a coalition of investors could demand cash distributions and threaten to vote out the board if they don't comply.
What kind of psychotic, suicidal investors group would kick out the board that has secured the kinds of returns this board has? I mean, I understand what you're saying but it seems like it would go against common sense to do something like that.
The kind that feels they could put in their own board members and have them immediately distribute Apple's cash hoard to the investors, at which point the investors cut and run. I don't think Apple has so much money that this is a profitable gambit at the moment, but at some bank balance you'd be stupid not to at least contemplate the option (especially since you can't expect the stock value to grow at its current rate indefinitely...).
The story says: "Last month Mr Cook admitted that the firm has more cash than it needs for its operations. It’s a nice problem to have. The obvious solution would be to give cash back to shareholders, either via dividends or share buybacks." They claim having more cash than they need as a problem, and then spend 5 paragraphs detailing solutions, without further explaining WHY it's a problem.
Speaking as an (extremely minor) shareholder, I have no desire for dividends or anything else. My AAPL portfolio has gained 100% in 2 years, that's good enough for me.