Monday, March 19, 2012

Investors Too Focused On Apple's Dividend

Today Apple (AAPL) announced a new dividend (the company last paid one in 1995) and the stock surged 2.7% to close over $600 for the first time. So why didn't Apple announce a dividend years ago if this was going to be the price reaction?

Well, mainly because the stock really jumped when news started hitting the wires that Apple sold 3M of the new iPad3s over the weekend. This makes the iPad3 the strongest launch yet and further proof that the dividend announcement will and always should be overshadowed by product innovation and sales. That is until the stock is no longer an exciting, growth company like Intel (INTC) or Microsoft (MSFT) now.

The dividend news honestly is not that significant and ironically it might just lead to more sales. What do you think Apple shareholders will do with a $10.60 yearly dividend? Possibly load up on more Apple products. So while the dividend news doesn't move the needle for this stock it might just help the economy as it funnels roughly $10B into accounts and out of corporate bank accounts.

In all the company announced plans for utilizing roughly $45B of cash over the next 3 years. At $15B a year, the amount is rather meager for a company that could generate that amount in just 1 year and already has $100B on the books. In reality, the company should probably begin a 100% net payout via the combination of dividends and buybacks. Does it really need to end 2012 with $125B+ in the bank?

Not to mention the $10B buyback is only intended to reduce the impact of stock grants so it isn't even a net impact to the stock.

Details from the announcement:
  • the Company plans to initiate a quarterly dividend of $2.65 per share sometime in the fourth quarter of its fiscal 2012, which begins on July 1, 2012.
  • Additionally, the Company’s Board of Directors has authorized a $10 billion share repurchase program commencing in the Company’s fiscal 2013, which begins on September 30, 2012. The repurchase program is expected to be executed over three years, with the primary objective of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs.

Apple remains a top holding in our Opportunistic models and will likely remain that way as the stock remains cheap. The recent move though probably needs a pause as the stock has become very extended after a run virtually straight up from $380 to $600.




Disclosure: Long AAPL. Please review the disclaimer page for more details. 



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