Analyst: Apple Should Use Cash Hoard for Stock Buyback, Dividends

| Apple Stock Watch

Apple needs to quit sitting on the largest cash hoard in the U.S. business world and return some of the money stockholders in the form of a stock buyback and a shareholder dividend. This, according to Sanford C. Bernstein & Co. analyst Toni Sacconaghi, who wrote in a research note Thursday that it’s time for Apple to commit US$30 billion to a stock buyback and set up a 4% annual dividend.

Apple currently had almost $47 billion in cash on hand and short-term investments at the end of the June quarter, which makes it the richest company in the U.S. in terms of cash-on-hand.

Apple has been steadily accumulating this rather large fortune since Steve Jobs came back to the helm of the company, and though analysts and shareholders alike have often asked Apple to commit to a major stock buyback and/or a dividend, the company has steadfastly said it needs the money to be able to make strategic investments when needed.

Instead of a dividend, company executives in the past have stressed that shareholders have been rewarded by the meteoric rise in the price of shares in the company. Bloomberg, which covered Mr. Sacconaghi’s research note, pointed out that AAPL has risen more than 400% in the last five years, compared to a 2.5% decline in the S&P 500.

Mr. Sacconaghi also said that it was important for the most secretive technology company on the planet to become more transparent with shareholders concerning its plans for its cash, despite the fact that the very lack of transparency in Apple’s plans have been part and parcel of the meteoric rise in the company’s stock.

Mr. Sacconaghi said returning cash to shareholders “would mitigate investor fear of a potentially large, value destroying acquisition and create financial discipline,” resulting in a higher price for the shares.

Shares in Apple closed higher Thursday at $251.79, a gain of $1.60 (+0.64%), on strong volume of 19.1 million shares trading hands.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.  

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13 Comments Leave Your Own

WetcoastBob

I get a kick out of these self styled soothsayers’ ramblings. 
Apple Ink is successful due to Apple and it’s employees not due to Crystal Ball gazers.

Lee Dronick

Buy Adobe.

BurmaYank

Buy Adobe.

That would be like Apple carrying a fox within its tunic, or Apple eating a meal laced with typhoid & cholera!

Apple should buy Hydra’s Solar-Hydrogen Power system to power the S.C. plant and all its other manufacturing operations worldwide with this 100% solar & hydrogen fuel-cell-generated electricity (using the stored electrolyzed hydrogen harvested/created from its constantly-recycled water and excess solar-cell-generated electricity during daylight hours, +/or from electricity generated from other free energy sources on its properties such as wind, geothermal, tidal/wave, etc.)

Then, when Apple’s operations have made economies of scale and public familiarity with this process finally cheap and available enough to compete with fossil fuels and nuclear energy, Apple could choose to transform the world by making this system economically available to any country/company.  Then, when hydrogen as a fuel thus becomes commonplace and fossil fuels would only be needed for making plastics and fertilizer, and the nuclear industry would only be needed to make weapons of mass destruction, therapeutic devices and rare research isotopes.

Apple could thus end poverty & most (non-religious) causes of warfare, to say nothing of stopping global warming singlehandedly.

partner

He just wants a large payout. Fine for shareholders, but terrible for the company.

Microsoft’s one-time payout of $32 billion (!) was a huge windfall for shareholders in 2004 but terrible for the company (and shareholders) in 2010.

That being said, Apple shareholders are betting that someday Apple will pay dividends or be bought out. Neither one seems likely any time soon.

Hahahaha, buy Adobe.

davebarnes

No.

Lee Dronick

Geez guys, all want is a cup of Cocoa Creative Suite. Something that is more Mac and less port. Either that of give us a good alternative to Illustrator, PhotoShop, and InDesign.

Lee Dronick

That being said, Apple shareholders are betting that someday Apple will pay dividends or be bought out. Neither one seems likely any time soon.

I paid $25 a share for AAPL and there has been several splits. I am not so much interested in dividends as I am having something valuable to sell when I am in my dotage.

aardman

For a supposed stock analyst, this guy has a very poor understanding of the value underlying a share of stock.  He makes you think that any money you get from a stock dividend or a share buyback program is free money.  The value of the Apple shares you own includes the $46B that Apple is sitting on.  If Apple pays that out as dividend, you get the cash, while AAPL adjusts down to reflect the cash outlay.  But wait, you pay income taxes on the dividend your received.  So, you’re actually worse off.  Share buyback is even worse.  Punishes the stockholders who do not participate.  If you want your share of Apple’s cash pile, sell your AAPL holdings.  If you held them long enough you pay capital gains taxes—less than taxes on dividends.

No to dividends & stock buyback.  No, no, no!

geoduck

Mr. Sacconaghi said returning cash to shareholders ?would mitigate investor fear of a potentially large, value destroying acquisition and create financial discipline,? resulting in a higher price for the shares.

A couple points.
The cash on hand is the result of financial discipline.
I’m not getting a lot of fear about a hostile takeover.
It’s not like they need his advice to get a higher stock price. Shares have been climbing fairly steadily for a couple of years now.

The takeover bit is an open question, for me at least. I just don’t know if that is a realistic fear. Anyone with a better understanding of the situation care to comment? Is it a realistic possibility for someone, with very deep pockets, to come in and buy up enough shares to take control the company?

Tiger

This guy is trying to manipulate the stock price, plain and simple. Create enough fear and it goes down. He buys more.

Why NOW after all this time? Yes, Apple has done so well that they can amass a large quantity of cash. I could have such a problem.

Are shareholders really clamoring for this dividend, or is it just .000000001% of them?

Apple is likely going to use some of the cash to ramp up R&D as well as some minor acquisitions. And of course, it is a very nice hammer to be holding over Adobe’s head when you have 2x the amount of cash in the bank than their market cap now, isn’t it?

geoduck

What would be funny is if Apple did buy Adobe (not going to happen) and six months later released a version of Flash that ran better on ALL platforms.

Lee Dronick

six months later released a version of Flash that ran better on ALL platforms.

That wouldn’t be funny, it would be a public service.

Tiger

SJ would be more likely to KILL Flash than fix it. Either way it would be humorous.

As long as they stabilize CS development of apps. The lag times between platform versions is tough on customers. (yeah, Apple is guilty of it too with iTunes, Safari, etc.)

They need to remember that the customers don’t necessarily just want ONE platform. At a university, we work in as many as we can. It’s security through diversity. But we need them to to “relate.”

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