Another sizable move today (albeit on low volume) for the market after Apple announced its plans to spend $10 Billion a year on dividends and buy back $10 Billion in stock. From Bloomberg (emphasis mine),
Apple Inc. (AAPL) will pay its first dividend in 17 years and buy back $10 billion in stock, heeding investors who urged it to return part of the $97.6 billion in cash amassed by robust demand for iPhones and iPads.
Shareholders will receive a quarterly dividend of $2.65 a share starting in the period beginning July 1, Cupertino, California-based Apple said today in a statement. The buybacks will begin in the fiscal year starting Sept. 30 and happen over three years, the company said.
…The dividend will cost Apple about $10 billion a year and represents a yield of 1.8 percent on the stock’s March 16 closing price.
Personally I think this is bad news for Apple. The company boasts a market cap above $500 Billion because of its products, not because of a dividend. I feel like new CEO Tim Cook is already trying to think of ways to keep the stock at a lofty valuation long term because he knows Apple does not have a successor product to the iPad.
Simply put, there is nothing in the works that will keep the innovation train rolling.
Spending $40 Billion in CASH over three years is Tim Cook’s way of saying, “I am not Steve Jobs. I have no vision for new products or for driving future growth through innovation. My roll is to maintain what Steve created to the best of my abilities.”
Three years from today the probability of Apple stock trading at a valuation of $560 Billion where it closed today is slim. Anyone buying the stock from this point forward has to acknowledge the fact that the leader of the helm has admitted they are nothing more than a baby sitter for Steve’s legacy.
Just like how the Government has committed to forever pouring trillions of dollars into stimulating the economy and inflating the stock market, Tim Cook is doing the same with Apple stock. Investors are quickly going to be addicted to the $10 Billion pill Apple pays out each year, and any deviation away from that in the future will only piss people off. Expectation is a brutal enemy.
Play out the numbers, in 10 years that is $100 Billion in dividend payouts. $100 Billion that could have been spent on acquiring other tech giants or fueling the most mind boggling product R&D programs. Things that will fuel growth down, not satisfy investors who were already euphoric over the brand.
I am a Apple fanatic in every way. I have two iPads (the newest addition being the new iPad 3), I religiously buy the new iPhone each year it comes out, and through my love for everything Apple I have converted several dozen family and friends to the Apple family of products.
However, after reading today’s news on Tim Cook’s plans on how to best use Apple’s $97.6 Billion cash hoard, my fanaticism has officially peaked.
Years from now after Apple stock concludes its historic run, peaks, sell offs, then begins its slow and uneventful move sideways, investors and Apple fans alike will look back and wonder what went wrong. Yes, Steve Jobs sadly passing away too early in his life will be the majority conclusion as to why the company lost its edge. However, some will also cite Tim Cook’s rise to the helm and making his first $40 Billion commitment in protecting his own image and not embracing Steve’s vision.
I am no Steve Jobs. You are no Steve Jobs. Tim Cook is no Steve Jobs. The one difference though between us and Mr. Cook is that we still believe in Steve’s vision for the future. Today Tim Cook has formally acknowledged he will not do everything in his power to try and carry forth Steve’s vision. And that is why Apple’s brightest days are officially over.