Writing about Apple's (NASDAQ: AAPL) decision not to buy back stock or pay a dividend, BloggingStocks' Dough McIntyre had this to say: "Apple could have announced a share buyback or created a dividend. Some critics would say that a "growth stock" is not an investment for yield investors. But, for the time being Apple is not a growth stock. Giving loyal investors a little cash back would not have been such a bad idea."
Here's why I disagree: at 27 times earnings, Apple will have to sink or swim as a growth stock. Apple boasts a return on equity of close to 30%. If the company's effectiveness is poised for such a substantial drop that shareholders are better off paying tax on a dividend that can be invested in savings accounts paying under 4%, then Apple investors might want to head for the hills.
I know, Apple has a $20 billion pile of cash. But if the company doesn't have better opportunities for that cash than dividends, shareholders are in big trouble.
They might be in big trouble anyway. But a dividend, even though it might have pleased some short-term investors, would have been confirmation that the company's ability to earn extraordinary returns on capital is a thing of the past.
Kudos to Apple for resisting buyback pressure
Posted Mar 5th 2008 1:50PM by Zac Bissonnette
Filed under: Management, Apple Inc (AAPL), Technology
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Reader Comments (Page 1 of 1)
3-05-2008 @ 2:33PM
Sheldon L said...
Zac, re-read your post. Your title is about buybacks but you speak to the issue of dividends. If ROE is 30% and stock is down then the buyback would be smart and build confidence...and few other investments would bring a 30% return...unless the company does not think that this will hold up.
Doug is correct about the buyback idea.
3-05-2008 @ 6:07PM
Jack said...
Douggie is not too bright.