Long Term Dividend Growth

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    Posted: 23 February 2012 06:12 PM #31

    Note:  AAPL does not have any outstanding preferred stock. 

    http://investor.apple.com/faq.cfm  ‘Course, that doesn’t mean they can’t do a new share issue or issue any preferred stock they already have.

    The possibility of higher dividend taxes = no way there’s a dividend, and the somewhat tepid hypothetical remarks about a stock split would seem to rule another share split out as well (though they’ve clearly helped AAPL’s share price in my opinion).  Unless Apple does something _very_ different, the odds of a repurchase just went up.  Even though all the possibilities I can think of, including repurchase, still seem so distant to me right now.  Eh, not like I care all that much at the moment - ask me again in a year or two.

    [ Edited: 23 February 2012 06:15 PM by Mav ]

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    Posted: 23 February 2012 08:20 PM #32

    opps my bad

         
  • Posted: 23 February 2012 10:52 PM #33

    danthemason - 23 February 2012 10:07 PM

    limiting dividends to preferred shareholders?

     

    Now there’s a new one.

    If that were to happen the share price would immediately drop $100, and I’d be done with Apple for good.

         
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    Posted: 25 February 2012 11:47 AM #34

    Technically, about $70 billion are in long-term investments. The amount of “cash” and short-term investments has been mostly flat around $25 billion since Q4-08. It may be more correct to say that Apple’s balance sheet resembles that of a profitable manufacturer of consumer electronics who also happens to operate a large investment fund. The formula worked for Porsche for many years. They were essentially a hedge fund that also made cars.

    Maybe Apple could essentially create a venture capital fund within itself to fund start-ups and research. That would be more productive than a simple dividend or buyback.

    That said, I think tax law and the election will play a big role in this decision. The special 15% tax rate on dividends is set to expire this year. If Obama is re-elected (which I say is about a 60% probability) then it is likely that the dividend tax rate will rise in 2013, which would give Apple an incentive to declare a special dividend in calendar 2012, if they do intend to do so (to give US shareholders the benefit of the lower rate).

    Also, Obama’s proposed budget calls for a minimum tax on overseas earnings. Apple has been calling for essentially the opposite - a tax “holiday” on repatriation of overseas earnings, similar to what the Bush administration did in the early 2000s. Depending on how the tax code ultimately shapes up, Apple’s cash/investment management strategy is likely to adapt. It must be exciting times in Apple’s treasury and tax departments right now.

    I took this from another thread at AI

    Basically if he is right we may have to wait longer for a decision.

         
  • Posted: 25 February 2012 01:18 PM #35

    Warren Buffett writes about share repurchases in today’s letter to Berkshire Hathaway shareholders (pages 6-7).

    http://www.berkshirehathaway.com/letters/2011ltr.pdf

         
  • Posted: 25 February 2012 09:07 PM #36

    Most excellent. Seems like AAPL fits a few of the parameters for a buyback, if you are a long term holder.

         
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    Posted: 25 February 2012 09:29 PM #37

    From Buffett’s letter, page 7 [boldface mine].  There’s more than a few “um, OK” moments in this excerpt.  To be maybe more than fair, let’s just say he’s approaching this from the perspective of an owner of companies, rather than investors like you and me. 

    Because if he’s not, a lot of this is total frickin’ nonsense when looking at AAPL.

    Let?s use IBM as an example. As all business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today. Their operational accomplishments were truly extraordinary.

    But their financial management was equally brilliant, particularly in recent years as the company?s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders. The company has used debt wisely, made value-adding acquisitions almost exclusively for cash and aggressively repurchased its own stock.

    Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company?s earnings over the next five years is of enormous importance to us. Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

    I won?t keep you in suspense. We should wish for IBM?s stock price to languish throughout the five years.

    Let?s do the math. If IBM?s stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.

    If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the ?disappointing? scenario of a lower stock price than they would have been at the higher price. At some later point our shares would be worth perhaps $11?2 billion more than if the ?high-price? repurchase scenario had taken place.

    The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day?s supply.

    Charlie and I don?t expect to win many of you over to our way of thinking ? we?ve observed enough human behavior to know the futility of that ? but we do want you to be aware of our personal calculus. And here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham?s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.

    In the end, the success of our IBM investment will be determined primarily by its future earnings. But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity.

    [ Edited: 26 February 2012 09:49 PM by Mav ]

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    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 25 February 2012 10:00 PM #38

    In the end, the success of our AAPL investment will be determined primarily by its future earnings. But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity.

         
  • Posted: 25 February 2012 11:23 PM #39

    I must be really missing something in Mr. Buffet’s thesis.

    If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the ?disappointing? scenario of a lower stock price than they would have been at the higher price.

    One can’t actually show up on their doorsteps and ask for their “share” as far as I know.  Given that the only way to cash out is to sell your shares the larger share price would seem to be more desirable.  This is far too obvious to me so quite likely I’m missing (or not understanding) something here.  This is particularly relevant at the moment as come mid-may I’ll be selling (what for me is) a substantial chunk of shares to close on a property in Key West.  If Greg’s $600.00 target is even close I’ll be one happy camper and…wait for it…,have to sell FEWER shares.  I know there are many here that will applaud the “taking profits” part of this and there may be worse things to diversify into then some beaten down real estate but the idea of fewer shares takes some getting used to. 

    Bill

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    Posted: 25 February 2012 11:35 PM #40

    Well, either Buffett is approaching this from the standpoint of a guy literally with resources enough in his company to buy very sizable stakes in other companies, or he forgets about the rest of us “small people” to quote an out-of-touch European BP executive.

    Because for individual investors, we could not care less about our virtual share of a perfectly healthy company’s profits, as if we had some demand right due to our massive multibillion leverage and influence.  It’s basically dividends, share appreciation, or a combination of both.

    Were I to don a tinfoil hat for a brief moment, it almost looks a little like Buffett is bending over backwards to explain why a stagnant IBM investment is best of BRK.x investors over time, rather than AAPL which has outperformed IBM by about 20% in the approximate time period where Berkshire took a 5%-ish stake in IBM (around November 2011).  Before any Warren Buffett fans jump all over me, remember, tinfoil hat’s on.

    [ Edited: 25 February 2012 11:46 PM by Mav ]

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Posted: 25 February 2012 11:45 PM #41

    He is talking about companies stock buy back and makes perfect sense.  If apple were to buy back shares with a set number of dollars, it would be the most valuable to shareholders if the company bought as many shares possible ( lower priced shares).

         
  • Posted: 26 February 2012 07:18 PM #42

    MrEntropy - 23 February 2012 10:02 PM

    Did anyone notice Tim’s comments about possibly limiting dividends to preferred shareholders? I can’t say I’m very excited about that, nor do I agree with his hypothesis that the tax implication will scare off regular investors. Any have any more info or care to elaborate? I’m getting this from AppleInsider, so the usual grain of salt caveats.

    Read Ragnar’s post on page one of this thread for answer to the tax question.

         
  • Posted: 26 February 2012 09:26 PM #43

    Mav - 23 February 2012 10:12 PM

    Note:  AAPL does not have any outstanding preferred stock. 

    http://investor.apple.com/faq.cfm  ‘Course, that doesn’t mean they can’t do a new share issue or issue any preferred stock they already have.

    The possibility of higher dividend taxes = no way there’s a dividend, and the somewhat tepid hypothetical remarks about a stock split would seem to rule another share split out as well (though they’ve clearly helped AAPL’s share price in my opinion).  Unless Apple does something _very_ different, the odds of a repurchase just went up.  Even though all the possibilities I can think of, including repurchase, still seem so distant to me right now.  Eh, not like I care all that much at the moment - ask me again in a year or two.

         
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    Posted: 26 February 2012 09:44 PM #44

    Mav - 26 February 2012 03:35 AM

    Were I to don a tinfoil hat for a brief moment, it almost looks a little like Buffett is bending over backwards to explain why a stagnant IBM investment is best of BRK.x investors over time, rather than AAPL which has outperformed IBM by about 20% in the approximate time period where Berkshire took a 5%-ish stake in IBM (around November 2011).  Before any Warren Buffett fans jump all over me, remember, tinfoil hat’s on.

    I’m no Buffett fan for his silly, disingenuous politics, or his complete misunderstanding of macroeconomics, but he is certainly worth listening to on individual investments. His “buy a company you know and believe in” thesis certainly works for Apple - it’s why I bought it in 1993, after all - he just doesn’t know Apple.

    For all those fawning over Buffett’s acumen, though, I’ve largely kept up with BRK-A simply via my Apple common all these years, and I didn’t enrich myself to the tune of billions of dollars at clients’ expense in the process - and then bitch I am not paying enough taxes.

    For the record, IBM is hardly “stagnant.” I bought it in 1993 for around $60 and it’s currently just near an ATH of $198, up well over 10-fold in that period if you count dividend reinvestment. Not AAPL-like, but not bad. IBM remains best in breed (enterprise services), while Apple is, of course, best in show.

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  • Posted: 27 February 2012 10:25 AM #45

    Warren Buffett: ‘Steve Jobs didn’t take my advice to buy back Apple stock’:

    http://www.cnbc.com/id/46540227?__source=yahoo|headline|quote|text|&par=yahoo