With Apple shares rising over 164% in just the past 2 years, it's definitely time they do something with their nest egg.
On Monday, Apple CEO Tim Cook and CFO Peter Oppenheimer confirmed what had only been optimistic rumors circulating in Wall Street: Apple will start buying back shares and pay investors a quarterly dividend.
Morningstar senior stock analyst Michael Holt believes "This is certainly positive news for shareholders. It's nice to see [Apple] returning [cash] to shareholders and…it's almost a relief to know they're not going to do a $50 billion acquisition that wouldn't make sense for the firm."
As the most valuable company in the world, based on market cap, Apple has been holding onto almost $100 billion in cash and investments in the past year. Interested parties the world over eagerly anticipated what the company would actually do with its nest egg and this week they got their answer.
Apple announced that it will pay $2.65 per share to investors beginning in the fourth quarter of fiscal 2012. Although that amount may sound rather large for a dividend per share, it actually comes out to about a 1.81% dividend yield, which is far less than what Microsoft and Verizon pay their shareholders each quarter. The company also announced plans to buy back up to $10 billion of its shares, to commence in fiscal 2013.
A dividend and buyback announcement may seem pretty customary and insignificant to many Wall Street observers, but the controversy lies in the fact that Apple founder and former CEO Steve Jobs was strongly opposed to offering dividends. In fact, the last time Apple paid a dividend was back in 2005. This dividend payment is estimated to cost Apple about $9.88 billion a year. As for its $10 billion share repurchase program, the company intends to start the operation on September 30 of its fiscal 2013 year. Apple currently has 932.4 million shares outstanding.
Rumors had it that Jobs was considering the purchase of Twitter, but whether that can be substantiated or not is moot given this announcement. Personally I think that a, say, $10 billion acquisition of the tweeting giant would be a great purchase. I mean Apple is exceedingly good at integrating software and hardware, but it has been rather lackluster in the social media department (at the time of this writing, they don't even have a Twitter account!). I think their biggest competitors over the next 5 to 10 years will NOT be HP or Dell or even Microsoft. They're probably going to be Google and Facebook. However, Cook is running the show now and I believe that a dividend-plus-buyback plan of action is, albeit rather conservative, a safe move for a new CEO faced with filling Steve Jobs' shoes.
As for the lesser pressing Tim Cook versus Steve Jobs issue, the answer cannot actually be gotten yet. I know you probably wanted a more committed affirmation in either direction but the fact of the matter is that while Steve Jobs has left the building, his prior actions are still echoing into the present. $100 billion is further evidence of that as well. Holt believes that while Tim Cook has made his own mark on the company since officially becoming CEO in August 2011, he's largely following in the footsteps of his predecessor and "$100 billion is definitely excessive when you get to that amount. You can give some back to shareholders without hindering any of your future strategic plans." Safe indeed.
While Apple's 23-minute conference call with analysts didn't leave much time to discuss iPad sales and product launches, Cook did mention that the company experienced a "record weekend" of new iPad sales and "we're thrilled with it."
Shares of Apple traded higher after Monday's buyback and dividend announcement (as expected), but Holt currently rates Apple with three out of five stars. A lot of calculations go into each of these precious stars, but I have to say that a current trading price of $601.10 certainly doesn't make this the cheapest purchase out there from a Buffettology point of view.
I think I'd much rather grab a few metals...
Over and Out,
Sponsored by Leland National Gold Exchange
Legal Disclaimer: The author has made every effort to ensure accuracy of information provided, however, neither Leland National Gold Exchange, nor RealMoneyReport.com, nor any other affiliate website, nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Leland National Gold and all of its affiliates, agents and associative entities do not accept responsibility or culpability for losses and/or damages arising from the use of this publication.