Apple Investors Sound Off on Dividend
"I was disappointed with Apple's dividend and buyback for one basic reason: It doesn't increase shareholder value in any lasting or meaningful way," said Ernie Varitimos, who runs the Apple Investor Trade Room.
|Apple investors are split on the company's dividend and share repurchase plan.|
"How does removing a tangible resource from Apple's bank and sprinkling it around like pixie dust increase the value of Apple?" he added. "It doesn't -- it just looks pretty for a short while until it all fades away, like casting a handful of sparkles into the ocean."
On Monday, Apple confirmed that it plans to initiate a quarterly dividend of $2.65 per share, sometime in the fourth quarter of fiscal 2012, which begins July 1. The company's board also authorized a $10 billion share-repurchase program, starting in fiscal 2013, which begins Sept. 30.
Varitimos, however, believes that Apple should be investing its money in heavy-duty M&A. "Wouldn't it be great if Apple finally put an end to Adobe's
Other Apple investors, though, took a more positive view of the new cash strategy. "The market was right to expect a move of this sort, and management was correct to deliver as it did," said Scott Grannis, who writes the Calafia Beach Pundit blog. "The dividend payout and the stock buybacks are neither aggressive nor skimpy, just very conservative -- the company has plenty of latitude to expand these programs over time if conditions warrant."
Apple, which had a cash hoard of almost $98 billion at the end of its recent fiscal first quarter, has come under pressure to start paying a dividend again. The iPhone maker stopped paying a dividend in 1995, but CEO Tim Cook had hinted that Apple may reverse its stance after he was appointed to lead the tech giant last year.
A famous dividend non-payer, Apple, along with Google
Apple's quarterly dividend yield works out to 1.77% based on the company's current share price. Microsoft's yield is 2.51%, while Cisco's is 1.58%, and tech giants IBM
Tech stocks, however, lag way behind telecom firms AT&T
Not that Apple investors were too surprised by the dividend yield. "The dividend is about in the range we expected," noted Michael Yoshikami, CEO and founder of Destination Wealth Management, in an email to TheStreet. "While some had speculated that the percentage might be higher, we believed management would be cautious in declaring an amount."
Brand said Apple's plan to return $45 billion to shareholders over the next three years could have been more ambitious. "Apple generated $40 billion of excess cash in 2011," he wrote in an email to TheStreet. "Assume that figure stays level for 2012 to 2014 (even though it should rise nicely) and over the next three years Apple generates $120 billion of free cash."
"The math is pretty simple -- the cash hoard will keep rising dramatically, even with this announcement," he said. "By year-end 2014, they will have $175 billion of cash, assuming no growth in earnings (and therefore no increase in the dividend)."
Brand acknowledges Apple's new cash philosophy resonates well with investors, but says the company could do more. "I don't see how it is going to address the problem (an ever-rising hoard of cash earning nothing for shareholders) unless they ramp up the buyback and dividend if earnings keep growing," he wrote.
2012 certainly looks set to be an eventful year for Apple. In addition to the company's eagerly anticipated cash announcement, Apple recently launched its new iPad, and is expected to unveil the iPhone 5 and a new TV.
Set against this backdrop, Apple's shares have been on a tear, climbing more than 47% since the start of the year, and recently surpassed $600 for the first time.
Investors, however, doubt that Apple's new dividend and buyback plan will have a major impact on the stock.
"Dividends don't increase stock prices and the repurchase plan represents less than 2% of the outstanding shares (so barely any accretion impact there)," Brand notes. "The idea that dividend investors buying in will boost the stock does not make logical sense -- stock prices are based off of earnings, cash flow, and the growth rates of both."
"I expect the stock to continue on its same path," Yoshikami said. "This is not like Microsoft, which essentially signaled they were moving towards slower growth -- Apple still have a growth plan in place that the market believes."
Apple shares dipped $4.59, or 0.76%, to $596.51 by midday Tuesday.
--Written by James Rogers in New York.
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