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Print 25 comment(s) - last by TakinYourPoint.. on Mar 20 at 5:32 PM

Apple plans to use $45 billion of its cash reserves over the next three years

It's no secret that Apple is a cash machine. The company rakes in billions of dollars thanks to a legion of loyal fans that lineup hours in advance to purchase its latest and greatest phones and tablets. The company has also seen a surge in its traditional PC business thanks to strong sales of its MacBook Pro/MacBook Air lineup of notebooks and iMac all-in-one desktop computers.
 
In late January, Apple reported profit of $13 billion on revenues of $46 billion for fiscal Q1 2012. The company saw its stock price cross the $500/share threshold in early February, making it worth more than Microsoft and Google combined. More recently, AAPL has danced with the $600/share mark. In addition, Apple has roughly $100 billion in cash/securities on hand – a figure that CEO Tim Cook said is “more than we need to run the company.”
 

Apple CEO Tim Cook [Source: David Paul Morris/Bloomberg]

This morning, the company announced a $10 billion stock buyback program that will start in fiscal 2013. The buyback will take place over the course of three years with the primary goal being to "[neutralize] the impact of dilution from future employee equity grants and employee stock purchase programs."
 
A more immediate action being taking place is a quarterly dividend starting in fiscal Q4 2012. The quarterly dividend will equal $2.65/share.
 
“Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program," said Cook.
 
According to CFO Peter Oppenheimer, these programs will burn through $45 billion of Apple's cash reserves over the next three years.

Updated @ 5:12pm
AAPL just closed above $600/share for the first time in its history. 

Source: Apple



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Investors win!
By mcnabney on 3/19/2012 9:32:18 AM , Rating: 2
About damn time!

Apple has been hoarding cash for a decade due to Steve Jobs' mental illness. Much like an intervention on the TV show Hoarders, some responsible businesspeople have finally gotten involved and convinced Apple that they don't need to keep enough cash on hand to run the business for five years.

Oh, and at Apple's current valuation a quarterly dividend of $2.64 is about 2% earnings per year. Not too bad.




RE: Investors win!
By zlandar on 3/19/2012 9:52:03 AM , Rating: 2
Yes his "mental illness" that took a company on the verge of bankruptcy to the most valuable US company in less than 15 years.

Yeah Jobs was no saint or angel. But give him some credit.


RE: Investors win!
By Iaiken on 3/19/2012 10:07:33 AM , Rating: 3
I actually agree with mcnabney about the mental hording that Jobs embarked upon. During that time, Apple missed the boat on acquiring companies like Facebook, Twitter and Amazon. Instead, they missed the boat because the all powerful Steve wanted to roll around on a pile of dollar bills.

Personally, I would have actually preferred to see Apple get into digital banking and finance. It makes perfect sense that the company should be the one extending credit to it's own customers instead of the credit card companies. Wan't a $700 iPAd? Finance it through the website. Hell, APPLE should be the company that is financing the billion dollar loans to carriers like Bell, Rogers, AT&T, Verizon, Sprint, O2, Vodafone etc.

This dividend is a stupid move.


RE: Investors win!
By zlandar on 3/19/2012 10:25:42 AM , Rating: 4
20/20 hindsight. Good luck trying to pick the next Google/Facebook without doing it after the fact.

The man brought a company on its knees to #1 in market cap and your complaining?

Maybe we need to hire more mentally unstable CEOs.


RE: Investors win!
By Samus on 3/19/2012 12:52:30 PM , Rating: 3
Steve Jobs is one of the most selfish billionairs in US history. He left virtually none of his wealth to non-profit or research/educational foundations, saturated Apple stock by not offering dividends and keeping the price out of reach of average investors, and with this in mind should be fittingly forgotten.

Tim Cook is a better CEO than Jobs could have ever been, and I think their finer years are ahead of them.

Did Steve Jobs save Apple? That is highly debatable. I feel he held back technology, and after the patent trolling began in 2007, that isn't debatable at all.


RE: Investors win!
By name99 on 3/19/2012 4:25:48 PM , Rating: 1
OMG so much...

(1) How do you know that Jobs left no money to education or foundations? The contents of his will (and what he did with his money beforehand) have been kept secret --- he was a private man who did not want his name in the news, even in the context of things like the name of a hospital wing.

(2) What is "saturating a stock"? And why is it a bad thing?

(3) So you think that the nominal price of a share is important? The stock is cheap if it goes through a split and costs $70 a share, but is expensive if it does not split and costs $700 a share? Good luck with that investment strategy --- there are a whole lot of penny stocks available outside NASDAQ, through pink sheets that will, I'm sure, make you rich.
And if this is something that upsets you, by all means don't go look at the price of Berkshire Hathaway.

quote:
Did Steve Jobs save Apple? That is highly debatable.

Right. And did Al Qaeda attack the US? Highly debatable. Does Intel make faster chips than ARM? Highly debatable. Was Obama born in the US? Highly debatable.


RE: Investors win!
By someguy123 on 3/19/2012 4:11:15 PM , Rating: 2
I agree that picking the next big website is a crapshoot, but to be fair Jobs isn't the one that brought apple back. Tony Fadell and Apple's massive marketing team are what brought Apple back. The only thing Jobs had done was introduce the NeXT UI into OSX (which was also an Apple decision, hence the buyout), and pushing the all-in-one mac. I don't understand why people give Jobs credit for the creativity and efforts of hundreds of employees. For some reason this only applies to Apple's endeavors, even though he also partially financed the rise of Pixar, though he, rightfully, doesn't get credit for things like Toy Story.


RE: Investors win!
By Solandri on 3/19/2012 7:10:37 PM , Rating: 2
quote:
The man brought a company on its knees to #1 in market cap and your complaining?

Maybe we need to hire more mentally unstable CEOs.

Just because someone is successful doesn't mean they're perfect. It's possible to respect and even like what a person has accomplished, while still offering fair and legitimate criticism of some of the things he did wrong.

I'd agree calling him mentally ill was an ad hominem. But not paying dividends is immoral IMHO. The first shareholders originally invested capital into the company - capital which was critical to its early growth. In exchange for that investment, they were given partial ownership and hence a share of the profits - dividends. Current shareholders have bought that right from the original shareholders. IMHO refusing to pay dividends would be like me declaring to the bank that I'm not going to pay interest on my mortgage anymore.

If you don't want to pay dividends, do the right thing and buy back all your stock. That's essentially paying back all the original investors (or people who bought rights to it) for their original "loan".


RE: Investors win!
By Tony Swash on 3/19/12, Rating: -1
RE: Investors win!
By Iaiken on 3/19/2012 9:48:14 AM , Rating: 3
quote:
Oh, and at Apple's current valuation a quarterly dividend of $2.64 is about 2% earnings per year. Not too bad.


No, it is pathetic. All of my dividend earners are in the 8-12% per share and offer a dividend reinvestment program with a 1-4% discount.

The fluctuations in the Apple stock (it often fluctuates $3-10 dollars a day) and it's high value make such a low dividend irrelevant. Apple is firmly positioned it in the realm of the day traders and automated investment computers that try to churn the stock on/between major announcements.

Further, based on Apples past four results, I would place their valuation at $440 based on their free cash flow and the massive risk of such a limited product line that is both limited in growth and incredibly vulnerable to any sort of embargo. That means they are currently horribly overvalued. One bad lawsuit in a major market and people will literally lose their shirts.


RE: Investors win!
By Iaiken on 3/19/2012 9:55:57 AM , Rating: 2
Further, at last check, Apple's P/E ratio has alawys been pretty far from the top (61st at last check). Add that when you take away their cash on hand, the physical valuation of the company is actually pretty abysmal and you start to realize that the risks Apple presents are hardly worth the risk of losing.

Even when you look at the monthly swings in the stock, you see massive downward swings of $40-60, which are indicative of just how volatile Apple's stock can be.


RE: Investors win!
By name99 on 3/19/12, Rating: 0
RE: Investors win!
By ilt24 on 3/19/2012 10:11:05 AM , Rating: 3
quote:
No, it is pathetic. All of my dividend earners are in the 8-12% per share


While I don't consider 2% high, to put it in context the 400 stocks in the S&P 500 that give dividends average 2.4%, the highest is 9.2%.


RE: Investors win!
By Iaiken on 3/19/2012 10:26:02 AM , Rating: 2
quote:
2.4%, the highest is 9.2%


I don't think you appreciate the power of 9.2% to grow your money vs 2%. The doubling time at 2%, compounded quarterly, is 35 years. The doubling time at 9% is 8 years. Factor in an additional drip discount of 2% and your doubling time shrinks to 6.1 years.

You're just looking at the wrong stocks, when you're a small investor, sometimes the best companies to invest in are likewise small as they have much more room to grow than the Apple of today.


RE: Investors win!
By ilt24 on 3/19/2012 10:52:10 AM , Rating: 2
If you want to call 2% pathetic so be it, I guess the yields offered by most stock are pathetic to you.


RE: Investors win!
By Iaiken on 3/19/2012 1:57:09 PM , Rating: 2
quote:
If you want to call 2% pathetic so be it


Look at it this way, 2% is basically enough to keep up with inflation, in which case you are still 100% dependant upon capital growth for a profit.

You're new to this whole investing thing aren't you? The bare minimum you should expect in order to make any headway and grow your money is about 5%. That is the bare minimum, anything less and you're not earning as much as you should be.


RE: Investors win!
By ilt24 on 3/19/2012 3:39:21 PM , Rating: 2
It’s amazing how you can come across as arrogant and ignorant in the same post. I’m not new to investing and overall I’m happy with the return I have gotten on my investments. If you want to pick your investments solely based on the dividend they pay out ok, to me you seem to be limiting yourself, but if that works for you great.


RE: Investors win!
By tayb on 3/19/2012 4:28:03 PM , Rating: 2
I bought 300 shares of Apple back in 2008 at $70 a share. My return on investment so far has been over 800%. 2% wouldn't entice me to start dumping more money into Apple stock though.

On the contrary I don't think this is a good move for Apple and I am contemplating taking my earnings to the bank. I would much rather them go on a spending spree buying other companies than spend $45 billion making some investors happy. I think the stock will begin to slide.


RE: Investors win!
By ilt24 on 3/19/2012 5:09:48 PM , Rating: 2
I agree 2% doesn't make me want to buy any more, but it's also doesn't make me want to hold any less. I’ve owned Apple since soon after they said the iPod would support Windows PC’s. Had they had a 2% dividend which I reinvested, that 2% would have accumulated quite nicely for me. Independent of the dividend I have considered selling some of my Apple but I’m not willing to pull the trigger yet.

I'm not sure what companies you want them to buy, they have bought many smaller companies over the years and continue to, but I’m not sure what large companies are a good fit. Sure they could by a network, record label or cable company, but what kind of return are they going to provide and do you run the risk of limited content from rivals on iTunes?



RE: Investors win!
By Iaiken on 3/20/2012 10:40:54 AM , Rating: 2
quote:
I'm not sure what companies you want them to buy


In the past there were numerous companies that I thought they should buy at the time, however, those opportunities are now gone. Instead, I stand by my assertion that Apple should have gotten into financing in order to profit off of the loan process that helps carriers put Apple devices into customers hands. Other tech firms are already going this route Rogers Communications being the most unconventional is going to do everything from corporate finance to credit cards.


RE: Investors win!
By Iaiken on 3/20/2012 10:34:48 AM , Rating: 2
quote:
I bought 300 shares of Apple back in 2008 at $70 a share.


For you to make that purchase and subsequent capital gain other investors took a $30,000 total soaking. This is what I am talking about with regard to volatility. While it's nice that you have made money off them, many other people have eaten 10-50% losses on the stock since 2008.

quote:
I think the stock will begin to slide.


Bingo! Now you're on board with the way I see this decision to pay out a pathetic dividend. If you go back to my original post you'll start to see that I was saying that this was a bad idea and that there were tons of better things to do with that cash.


RE: Investors win!
By TSS on 3/20/2012 2:13:13 AM , Rating: 2
I'd still consdiering anything below inflation not worth holding, unless you're only doing it to sell the stock at a profit.

Just because apple's is low doesn't mean others are high, either.


If you want to buy, WAIT
By TakinYourPoints on 3/20/12, Rating: 0
RE: If you want to buy, WAIT
By Dorkyman on 3/20/2012 10:35:56 AM , Rating: 2
Man, good luck with that technical analysis.

Personally, I put the value of such analysis on par with the intrinsic value of those "magnetic bracelets" you can buy.

I'm more of a "random walk" stock price kind of guy. My analysis consists of trying to imagine the world in 5 years, then buying stock of those companies that will probably be successful in that world. That's it.


By TakinYourPoints on 3/20/2012 5:32:18 PM , Rating: 2
Technical analysis is an excellent way to evaluate risk, especially in the short term. I'm saying that AAPL chart is currently risky, that's all.

If you wish to buy at these levels while AAPL's price is so historically far from its mean and after such a move, be my guest. In the mean time, TA has helped me pick numerous buy levels with reduced risk over the years. Again, wait. I used my pick from last year as an example, got in at the lows of 2011, and it was all from the charts.

If you don't know much about TA then fine, but don't pretend ignorance is knowledge. A good trader or investor will use both technicals and fundamentals to their advantage.


"And boy have we patented it!" -- Steve Jobs, Macworld 2007














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