Tuesday, October 7, 2008

Apple Dividends: Are you kidding me!

Apple needs to pay a dividend.


I no longer buy the Tech "Growth" myth.  It is true for small tech firms with no income investors to pay hypergrowth curves but not for large established companies with large institutional investors.  Business is business.

Legitimate uses for cash in a business are investment in capacity, or investment for return.  Apple invests plenty in capacity, R/D and innovation but realistically what could they invest $20 billion dollars in?  they could build New Yankee stadium 20 times!  As for Return .   Braeburn Capital in Reno is owned by Apple and invests their cash.  Returns for cash are pitiful right now.  Every dollar not returning the growth of the computer/ipod/iphone business is dilutive to earnings.

Apple has $27 billion dollars in Current Assets and NO debt.  Apple should reward the investors that own equity in the company.  Pay the shareholders that have taken the risks on the company a yield on their investment.  Apple added 17 Billion dollars to their current assets in the 33 months since Sept 2005.  OVER a half a billion a month!.  If Apple had paid 5.00 per share dividend for each of the last three years they would currently have more than 10 Billion in the bank and no debt.  

Ignoring "Agency" issues that could motivate a company to hold cash more than what would be prudent Here is a list of some reasons that Apple should be paying a dividend.

1, Holding cash in excess of current needs is dilutive to earnings.  (over simply... if Apples market cap is 90b and they have 30b in the bank: earnings of 20x is diluted to 30x plus the cash)

2, A significant block of shareholders cannot, due to investment guidelines buy stocks with zero yield.  (Pensions)

3, If Apple were paying a dividend do you really think the shareprice would have halved in the last 10 months?

4, Among companies with a market cap over 25B (Aprox. 165 companies yahoo finance) there are only 8 that pay NO dividend (Apple, Oracle, Transocean, Amgen, DirectTv, Goog, Berk-A, CSCO)

5, Its the shareholders money.

6, There is currently no better use for the money.  (EG Yields for cash investments are crap)

Writer is long Apple and wants a dividend!  don't do anything because this guy thinks you should. not that he thinks you should, see it is a slippery slope thinking you know what I mean.  Don't do it!


Anonymous said...

Yeah, and they should have split the stock a year or two ago too.

Anonymous said...

A stock split and dividends!