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

~~~
andylei
> 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

~~~
padobson
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>

~~~
ChuckMcM
But you only have to have 50.1% of the shares to force the other 49.9% to let
you go private :-)

~~~
SoftwareMaven
Serious question: wouldn't the SEC say "no way" if that 49.9% constituted more
than 500 (at least, I believe that's the number) people?

~~~
msellout
Yes.

if (NumOwners >= 500) public = true;

~~~
grinich
Actually, I think the rule is >500 investors, you have to publicly disclose
financials a la Sarbanes–Oxley Act.

Different than being a publicly traded company.

------
bbhacker
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.

~~~
tptacek
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.

~~~
jcfrei
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))

~~~
lusr
The Apple Board of Directors has a fiduciary duty to investors. If they take
action that causes the share price to fall dramatically, thereby losing
investor value, you can be pretty sure the Board will not last very long so
yes it would matter.

~~~
jcfrei
that's only true in theory. the largest investors are usually pension funds
and in general they approve whatever the board recommends.

~~~
tptacek
Then Apple can put their space exploration ambitions up to a vote of the
shareholders, who are the ones who actually own Apple's money.

Hence today's dividend announcement.

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Osiris
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.

~~~
Cushman
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.

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kytmizuno
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.

~~~
Cushman
Yeah, that's a good point. But even a billion dollars wouldn't put it out of
their price range. I'd also imagine they could drum up serious public support
by offering to give everyone free cell service, and maybe squeak out a
legislative discount.

But I guess it's all a pipe dream anyway.

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brudgers
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.

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

~~~
maukdaddy
Apple does not want to become a conglomerate. No matter how "alone" you want
to leave a subsidiary it will always be a distraction to management.

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allwein
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.

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rmc
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.?

~~~
nikcub
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).

~~~
veyron
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?

~~~
nikcub
the 'wallstreetification' of apple is complete

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bluedevil2k
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.

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themichael
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.)

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outside1234
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.

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nikcub
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.

~~~
smackfu
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.

~~~
nikcub
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...](http://www.microsoft.com/presspass/press/2004/jul04/07-20boardpr.mspx)

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...](http://ask.metafilter.com/11657/Why-Will-Dividend-Make-Microsoft-
Stock-Price-Fall-By-Dividend-Amount)

~~~
InclinedPlane
The dividend and buyback has been an attempt to mitigate the stock price
flatness problem. It's a very serious issue for the company, especially at the
employee level (what's the use of stock grants and options if they have no
value beyond mere cash payments?

~~~
smackfu
On the other hand, employee options are actually hurt by dividends since the
option holder takes the price hit on their outstanding options, but does not
receive the dividend value.

~~~
tedunangst
Market options are sometimes adjusted for exceptional dividends, but I don't
know about employee options.

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tonyx
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.

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w1ntermute
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
I imagine both of these would have been seriously considered if it weren't for
antitrust concerns.

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drawkbox
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
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.

~~~
drawkbox
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.

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

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

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

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infiniteburp
Initiate? How about "re-instate dividend". Apple previously paid a dividend :
[http://finance.yahoo.com/q/hp?s=AAPL&a=08&b=7&c=...](http://finance.yahoo.com/q/hp?s=AAPL&a=08&b=7&c=1984&d=02&e=19&f=2012&g=v)

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debacle
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?

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

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chj
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.

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joelmaat
Buy at the market peak. Genius.

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velus
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

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

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Porter_423
What Apple will do with its cash has long been a topic for discussion, with
analysts and investment specialists crying for a dividend

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xefer
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.

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jsumrall
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.

~~~
astrodust
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.

