My GettingLost Blog
What Apple’s Stock Dividend Really Means to the Average Person
Apple CEO Tim Cook

APPLE CEO TIM COOK

Apple CEO Tim Cook announced last week that Apple will initiate a quarterly dividend payment to current shareholders, as well as a buy back of almost $10 billion in stock to help avoid reducing employee equity.

The conference call began with Tim Cook stating that Apple’s current financial condition is better than it ever has been. There were 37 million iPhones sold last quarter and that number is only going to increase with worldwide cellphone user set to grow from 1.6 billion in 2011 to over 2 billion by 2015.  The tablet marketgrowth is going in the same direction as the iPhone, wherein Apple sold 55 million iPads before the third-generation iPad was released, and it’s estimated that there will be 320 million tablets by 2016. Tim Cook also commented that the Mac just had its 23rd consecutive quarter of growth.  There is little question that right now, Apple is doing extremely well.

Due to Apple’s success over the last several years, the company has a cash balance of over $100 billion. “After a lot of analysis, thinking and listening to the input we were getting from our shareholders,” Tim Cook and Apple have decided to pay investors a quarterly dividend of $2.65 a share and begin a stock repurchase plan to prevent dilution of employee equity.

As to the dividend, Apple estimates this will cost $10 billion per year for the next three years. The dividend will be officially declared in July. The stock repurchase plan will begin on September 30 and is expected to cost Apple about $10 billion by 2013.  In total, Apple expects to spend approximately $45 billion.  “Even with these investments, we have a huge warchest, and plenty of cash to run our business,” said Tim Cook.  For more information about the conference call, check out Apple’s pre-conference call press release below.

There is no doubt that $45 billion is a staggering number and that almost every company in the world would love to have this problem, but let’s look at what the number really mean to an average Joe like you and I.

One of the reason Apple cited as to the quarterly dividend was to “generate income” for its investors and to attract new investors who require a dividend.  Now, this is the part that everyone should pay attention to: to accomplish this “goal,” Apple is paying a dividend of $2.65 per quarter share.  Yes, that is right, $2.65 per quarter share.

How does this translate to everyday real numbers?  Let me explain.  Let’s say that you have a job wherein you work 8 hours a day, 22 days a month, at $10 an hour.  That would be $1,760 a month before taxes.  Multiple that number times three to arrive at $5,280 quarterly before taxes.  Now, let’s say that you wanted to quit your job and just live off Apple’s quarterly dividend.  How much stock would you need to own to make $5,280 quarterly?  With a dividend of $2.65 per quarterly share, you would need 1,993 shares.  Today, Apple closed at $601.10.  So, 1,993 shares would cost you $1,197,992.30.  That is right, $1.2 million.  I don’t about you, but I don’t have $1.2 million just lying around.  And if I did, I am pretty sure that I would not invest it in something with a return that is barely above someone making minimum wage.

Yes, I realize and understand that Apple shareholders and potential investors are not going to be living off the dividend.  I illustrate the above example to show just how ludicrous and ridiculous Apple’s statement is that part of the reason they are doing a dividend is to generate income for it’s investors and to attract new investors who require a dividend. Let’s call it what it is: Apple is not looking for average Joe investors; Apple is looking for investors who can drop millions of dollars without thinking twice about it. Apple is an extremely rich company that is looking for extremely rich investors. What is the old saying: it takes millions to make billions.  As to their stock, Apple is completely and totally out of touch with the average investor.  Don’t get me wrong, Apple has no problem taking your money.  The only question is how much can you afford at $600 a pop?  For me, I only have one question for you:  Do you want fries with that?

Press Release:

CUPERTINO, Calif.–(BUSINESS WIRE)–Apple® today announced plans to initiate a dividend and share repurchase program commencing later this year.

“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future”

Subject to declaration by the Board of Directors, 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.

“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future,” said Tim Cook, Apple’s CEO. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.”

“Combining dividends, share repurchases, and cash used to net-share-settle vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs,” said Peter Oppenheimer, Apple’s CFO. “We are extremely confident in our future and see tremendous opportunities ahead.”

Apple will provide live streaming of a conference call to discuss its plans beginning at 6:00 a.m. PDT on Monday, March 19, 2012 at www.apple.com/quicktime/qtv/call31912. The Company will not be providing an update on the current quarter nor will any topics be discussed other than cash. This webcast will also be available for replay for approximately two weeks thereafter.

This press release contains forward-looking statements including without limitation those regarding future business outlook and plans for dividends and share repurchases. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive and economic factors, and the Company’s reaction to those factors, on consumer and business buying decisions with respect to the Company’s products; continued competitive pressures in the marketplace; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product introductions and transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company’s gross margin; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the continued availability on acceptable terms, or at all, of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; risks associated with the Company’s international operations; the Company’s reliance on third-party intellectual property and digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the Company’s dependency on the performance of distributors, carriers and other resellers of the Company’s products; the effect that product and service quality problems could have on the Company’s sales and operating profits; the continued service and availability of key executives and employees; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery, or demand of products; and unfavorable results of other legal proceedings. More information on potential factors that could affect the Company’s financial results is included from time to time in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 24, 2011 and its Form 10-Q for the fiscal quarter ended December 31, 2011. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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