The highest federal tax rate for qualified dividends is 15%, the same as for qualified capital gains. So why you pay 30% for the former and nothing for the latter is something you need to explain.
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Carl Icahn Pushed for $150 Billion Stock Buyback at Dinner with Apple CEO Tim Cook [Update: Has $2 Billion Invested]
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The highest federal tax rate for qualified dividends is 15%, the same as for qualified capital gains. So why you pay 30% for the former and nothing for the latter is something you need to explain.
Steve never felt the need to explain himself to anyone and made the a priori assumption that anyone who didn't see things his way was a total bozo. So we will likely never know what if any rationale he kept to himself for amassing cash. Granted it wasn't as much then, but the number was already large enough and the rate of accumulation projectable, such that stockholders at annual meetings and reporters at conference calls routinely brought it up. Steve never said anything significance in answer to these questions.
Given the quickness with which the company declared a dividend after Steve's passing, I'd have to assume that Steve was standing in the way of it happening earlier. I personally doubt he would have approved of the first dividend and buyback, and I am virtually certain he would never have sanctioned the second, much larger one. Not that he would have ever explained why.
I think you meant to say decreases the P/E (since the E is the denominator). I only mention this as others here may be unfamiliar with some of these financial terms.
Fixed it. Thanks.
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Now you're just being pedantic. Let's just agree to disagree.
$60Bn is a relatively small buyback? I thought it was the largest buyback in US corporate history?
Ok so look at what's happened since they did the last buyback. Has the share price gone up significantly? No, it's up and down just like it was before. Ok they might raise the floor below which the shares won't fall but it's still a quick fix. It doesn't address the fundamental concerns of Wall Street (who still control most of the shares) which is that Apple needs to diversify it's revenue base to be less reliant on the iPhone. Just look at what happened to Blackberry. That could easily happen to Apple and no they probably won't see it coming either.
Well, statistically speaking it doesn't give you a better chance of picking great stocks than a group of chimpanzees, but it's not pointless.. It does get you an unwarranted paycheck in the six figures while you contribute absolutely nothing to... Well, anything.
So why has the share price been going up and down between 400 and 500 over the past few months AFTER Apple already did their last buyback. Why didn't the share price go up and stay up using your magic formula???????????
How is Adobe an unrelated business? Many Mac users rely on Adobe software for their work. Apple could easily integrate it and turn their products into Apple branded software. I seem to remember that's what they did with iTunes, Final Cut and Logic.
Apple are struggling to get content for the AppleTV. They could easily buy Disney which owns ABC and ESPN. That would get them a veritable treasure chest of content they could exploit worldwide.
I do not believe that Tim Cook should run Apple solely for the benefit of a few self-obsessed shareholders. If they don't like the way he's running the company then sell your shares and buy something else. Simple, that's what Steve used to say all those years and that worked out pretty well I would say. Tim Cook also has a responsibility to Apple customers around the world.
Because there are many other factors at play here. I'm sure you know that because, as you've said, you're a stock market investor.
I'll name two factors:
1. Decreasing margins
2. Decreasing growth in earnings
I guess some analysts believed Apple would be able to maintain their insane margins and growth in earnings forever.
LOL
You have demonstrated, over and over again in this thread, that you have no idea what you're talking about. You don't fundamentally understand how buybacks work (or how to gauge their efficacy), you don't get that Apple has more than enough cash to invest in new products and do a larger buyback, and you don't understand the enormous risks large acquisitions pose to the acquirer. Your replies, if they were compiled into a short paper and presented to any professional in the finance field or academia, would be laughed at for its naivete and lack of even the most basic understanding of market realities.
Who said it was a magic formula? The share price will be higher, all other things being equal -- which they rarely are.
Incidentally, it should be understood that the current buyback is ongoing. We never know when Apple is buying shares, only that they have committed a certain amount of money to the program.
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3. Overall market conditions.
Small was probably not a good choice of word. It is the largest announced buyback, but they are doing it over three years. I don't think we know how much the $60B has actually been done. It is relatively small compared to the total market cap and the cash flow projections. If we spread it evenly over three years, this year's $20B buyback is much less than the $50B in free cash flow that will probably come in.
I agree that diversifying away from iPhone is important. But building another meaningful line of business is hard. Just because Apple has billions to spend, doesn't mean they can go to the "Innovation Store" and order up $10 billion in innovation. The closest to that they can do is something like acquiring Tumbler for a $1 billion. But those innovative internet companies cost a lot and largely come with no profits. And even when they have profits, they are terrible profit ratios compared to their cost.
I guess Adobe is related. I'm just not sure how Apple owning it makes it better. Certainly Apple wouldn't be introducing the world to Adobe. And no one would be fooled if Apple started calling it the iPhotoshop.
Buying Disney would require total culture change. Apple engineers and Disney deal makers wouldn't get along, they would just get in the way of each other or they would ignore each other, in which case it is still just two companies. It seems like a tremendous distraction. Though yes Apple wants exclusive content on its devices so you have a reason to buy its devices. But Apple can get that with a license deal as well.
I doubt Tim Cook is running Apple for the benefit of a few shareholders. My guess is that Tim Cook has had dinner every day this year. So far it seems he has devoted one of those dinners to talking to Icahn. I suspect Tim gives very little thought to Icahn either before or after that dinner. But shareholder relations is a part of a CEOs job. And Cook basically fit this in outside of the normal working day while he could multi-task (i.e., eating dinner which he would have done anyway). Seems polite, useful and about the right amount of priority to me.
I think Tim's doing a great job. In fact he is doing such a great job I think the cash pile is going to keep growing and we will revisit this issue again.
Adobe makes something like half of its profits from Windows software. Does Apple really want to instantly become one of the world's largest Windows software vendors? What advantage could Apple possibly attain from owning Adobe?
Buying into an entertainment creator like Disney is even more problematic, even if we ignore the culture issues. Apple would automatically become a competitor with every other entertainment creator. Would that competitive relationship help or hinder Apple's efforts to place more content on their TV devices?
Buying into an entertainment creator like Disney is even more problematic, even if we ignore the culture issues. Apple would automatically become a competitor with every other entertainment creator. Would that competitive relationship help or hinder Apple's efforts to place more content on their TV devices?
Now we are talking. Those are some impressive ideas. I'm not saying that Apple hasn't thought of them all. But they are impressive considering these posts (including mine) are largely the work of amateurs. I stand and applaud that post.
But . . .
All of those have to hit a threshold return level. And Apple's standards are high. Apple has 30%+ margins. So these investments that you suggest have to show a 30% return in the model. I bet a lot have been considered and they don't pencil out. 30% returns are hard to find. Otherwise we would all be rich.
Sorry. Steve wanted the money because it gave him power. He wanted the power because it allowed him to create cool products. But the money is power. He knew that, which is hardly shocking because almost everyone over the age of 16 knows that money is power. You can argue that he used his power to produce better products. For every dollar his customers gave him he returned $10 in value. Fine. He is saint. But he needed that dollar in sales. So he cared about money. It allowed his engine to go. He was too much of a sophisticated businessman to recognize that.
Also, side note, he certainly cared about his family. His Pixar and Disney deals set those folks up for life (and for future generations). So perhaps he could re-focuse. But if those things were not taken care of, he would have focused on that.
FYI, I'm a huge Jobs fan. I wept on the day of his death. I think the human race is worse off for his loss. Read those three sentences again.
But he needed Apple to have money to get stuff done. So he cared about the money. Big time.
Perhaps because other companies realized that their owners should share the profits earlier?
How
Where's the $150 billion come from? I believe Apple has most of their $146billion in cash overseas, which would be taxed if repatriated. Won't happen.
$150bil bond offering?? Is that even possible?
It makes sense though. Apple would save over $4billion a year in dividend payments alone.
Apple has to do something with all their cash. Cook should be fired for sitting on $150bil that earns 1%, instead of buying back shares at this price level. Apple will trade at a Multiple of of under 4 (ex-cash)if they make $70 a share, which i believe they'll do, in 2015. As a side note, i think Apple will sell at least 90 million iphones within 2 quarters when/if they roll out an iphone with at least a 4.7 inch screen.
Buy back shares or raise divy to 6%. Sitting on that much cash makes zero sense. Zero!
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Where's the $150 billion come from? I believe Apple has most of their $146billion in cash overseas, which would be taxed if repatriated. Won't happen.
$150bil bond offering?? Is that even possible?
It makes sense though. Apple would save over $4billion a year in dividend payments alone.
Apple has to do something with all their cash. Cook should be fired for sitting on $150bil that earns 1%, instead of buying back shares at this price level. Apple will trade at a Multiple of of under 4 (ex-cash)if they make $70 a share, which i believe they'll do, in 2015. As a side note, i think Apple will sell at least 90 million iphones within 2 quarters when/if they roll out an iphone with at least a 4.7 inch screen.
Buy back shares or raise divy to 6%. Sitting on that much cash makes zero sense. Zero!
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Great ideas, all of which could be accomplished with only a quarter of their cash pile.
That was my point last time. The buyback generates a quick hit so the share price goes up but as other factors come into play the share prices comes back down again. That's what I was saying. How does that help shareholders in the long term? Ok if you want to make a quick profit like Icahn I can see the benefit but it doesn't help genuine long term investors who want to see their shares gradually appreciate over time presumably to build a nest egg for their retirement or something like that.
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Yes and that's probably why Apple is the most successful company on the planet - without paying any dividends or buybacks for all those years that Steve was in charge.
Most American companies are forced to always look at the short term because greedy investors want big dividends, buybacks, volatile share prices so they can a quick buck. I know I've worked for largest US IT companies.
I'd rather have Steve's model any day. You make your profit by buying the shares and watching them appreciate as the company grows thereby generating a profit when you want to take it.
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No need for personal attacks. I'm just expressing my opinion. I understand perfectly how a buyback works and that's why I'm against it because I think there are better ways of generating shareholder value.
Ok but it's because of those other factors that the stock price may have settled down to where it was (I say 'may' because the buyback is not completed and there's no way really to show a direct correlation of the price settling back to where it was before the buyback). Void of those other factors--which may or may not be present during the entire course of the buyback--and the stock price will go up, strictly based on decrease in supply and increase in EPS.
Didn't Verizon just complete the largest bond offering ever at like $50 billion? They are at about 1/3 the market cap of AAPL so maybe $150 billion is possible. I don't know how much cash they have vs. Apple.