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Without buybacks or dividends, Apple would have $210 billion in the bank
Apple's capital return program, originally announced back in March of 2012, has already returned vast amounts of money to shareholders in the form of dividends and stock buybacks Since its first incarnation, Apple has dramatically increased the scope of its stock buyback program, announcing in April of 2013 that it was expanding from an initial level of $10 billion to $60 billion. One year later, Apple increased its stock buyback program yet again, this time to $90 billion. This was also accompanied by steadying increases to Apple's quarterly dividend. All told, Apple's current capital return program aims to return $130 billion in value to shareholders. During Apple's most recent earnings report, Apple CFO Luca Maestri noted that the company has thus far taken action on "over $74 billion of our $130 billion capital return program with six quarters remaining to its completion." So with about a year and a half to go until the $130 billion figure is reached, Horace Dediu of Asymco earlier this week provided us with an up-to-date snapshot as to the state of the program. Breaking down Apple's $74 billion figure, Dediu notes that Apple thus far has doled out approximately $21.5 billion in dividend payments while spending approximately $53 billion on stock buybacks. That's an insane amount of cash and Dediu alerts us to the fact that Apple's cash position would be out of this world had they chosen to keep it all for itself. "What would have happened if Apple had not paid any dividends, bought back shares and taken on debt?" The answer is in the blue line. It would be about $210 billion today. There are about a dozen companies other than Apple worth more than that amount. On a related note, Apple's capital return program has had a discernible impact on the company's share price. Bloomberg reported not too long ago: The iPhone maker is up 25 percent since it spent $18 billion on its own shares between January and March and rallied 32 percent after a $16 billion buyback in 2013. Those are the highest four-month returns among the 20 biggest quarterly repurchases by any company since 1998, according to data compiled by Bloomberg and Standard & Poor's. As it stands now, Apple shares are on the cusp of an all-time closing high, having just barely topped $100 a share earlier today.
Apple last quarter spent more money on stock buybacks than Google generated in revenue
Since March of 2012, Apple has nearly tripled its capital return program. What started out as a US$45 billion effort to return value to shareholders has now skyrocketed to a $130 billion program. In conjunction with Apple's increased capital return program, the company recently made available the above chart which maps out a timeline of its dividend payouts and stock buybacks. The chart is worth highlighting because it really illustrates the magnitude of just how much money Apple is spending. As the chart indicates, Apple in the last two years or so has spent $46 billion on stock buybacks and $18.4 billion on dividend payouts. Over and above that, Apple in recent months has gotten even more aggressive about stock buybacks and and increasing its dividend amount. During the most recent quarter, for example, Apple spent $18 billion on stock buybacks. To put this figure into context, Google during the same time period generated $15.4 billion in revenue. In other words, Apple spent more money on stock buybacks last quarter than Google even generated in revenue. And yes, Apple may be issuing debt to fund the operation, but it's not as if it's doing so because it doesn't have the cash on hand. On the contrary, Apple today has $151 billion in the bank. The only hiccup is that the bulk of that cash is overseas, meaning that if Apple repatriated that amount back to the U.S, it'd be subject to a high corporate income tax rate. So from Apple's perspective, it's more economical for them to issue debt with an extremely low interest rate than it is for them to bring over their cash hoard abroad. Also worth mentioning is that Apple is one of the largest dividend payers on the planet. Since reinstating dividends back in March of 2012, Apple has cumulatively doled out $23.44 per share to shareholders. By way of contrast, Microsoft -- which is no stranger to having huge stockpiles of cash -- has paid out $1.96 per share in dividends during the same time period.
With dividends and stock buybacks, Tim Cook forges a path separate from Steve Jobs
"This would have never happened if Steve Jobs were still alive." When it comes to Apple, this is a quip that's repeated so frequently that it has essentially become a laughable cliche. The aforementioned quip is typically bandied about whenever Apple makes a misstep or even takes a step in a new direction. More often than not, folks who use this blurb employ it derisively, usually trotting it out when criticizing Tim Cook's ability to ably steer the massive ship that is Apple. The thing is, not every idea Steve Jobs had was golden. Not every decision he made was a smart one. Which is to say, sometimes Tim Cook deviating from what Steve Jobs would have done is actually a good thing, if only to prove that Cook and Company aren't falling prey to "What would Steve Jobs do?" syndrome. Apple needs a leader who is able to make smart, informed, and often difficult decisions. Dwelling on what Steve Jobs may or may not have done impedes that ability, and Tim Cook, to his credit, has had no problem putting his own stamp on the way Apple does things. One such example of Tim Cook deviating from what Steve Jobs would have done was Apple's 2012 announcement that it would start paying a substantial $2.65 cash dividend to investors and repurchasing its own shares on the open market. One year later, Apple increased the dividend payout to $3.05. And one year after that, it was increased to $3.29. In the process, Apple has paid out billions of dollars to investors in a relatively short time period, quickly making the company one of the largest dividend payers in the world. Over and above that, Apple since 2012 has repurchased millions upon millions of its own shares on the belief that the stock is undervalued. "This never would have happened if Steve Jobs were still alive." Now in this scenario, that's likely true. Jobs was averse to paying out dividends and repurchasing shares, even when Apple's cash hoard reached levels beyond what the company actually needed to run its business. Interestingly enough, Jobs at one point even consulted with noted investor Warren Buffett about Apple's ever increasing stockpile of cash. Buffett advised Jobs to repurchase shares of Apple though Jobs chose to just do nothing with Apple's cash. According to Buffett, Jobs simply "liked having the cash" around. Funny enough, Buffett recalled during a 2012 interview on CNBC that Jobs wasn't exactly forthright with others with respect to the the advice he had given the Apple CEO. He told me they would not have the chance to make big acquisitions that would require lots of money... And then I asked him the question, I said .. 'I would use it for buybacks if I thought my stock was undervalued.' And I said, 'How do you feel about that?' The stock was 200-and-something. He said, 'I think my stock is very undervalued.' I said, 'Well, what better to do with your money?' And then we talked awhile. And, he didn't do anything, and of course, he didn't want to do anything. He just liked having the cash. It was very interesting to me because I later learned that he said I agreed with him to do nothing with the cash. (Laughs.) He didn't want to repurchase stock although he absolutely felt his stock was significantly underpriced at two-hundred and whatever it was then. Sometimes, the "This would have never happened under Steve Jobs" line is actually a compliment.
To date, Apple has spent $28 billion on stock buybacks and $15.8 billion on dividend payments
Apple last April announced plans to substantially increase its dividend and share-repurchasing program to US$100 billion. Apple's press release at the time explained that the company "expects to utilize a total of $100 billion of cash under the expanded program by the end of calendar 2015." Of that $100 billion figure, $60 billion will be allocated toward stock buybacks while $40 billion will be allocated toward dividend payments. With 2014 already underway, I thought it might be high time to check in on the program and see how far along Apple is toward reaching its $100 billion goal. Taking a look at Apple's recently filed Form 10-Q, we see that Apple, during its most recent quarter, utilized $5 billion to repurchase 9.5 million shares of common stock while paying out $2.7 billion in dividends to shareholders. Not too shabby for just three months' time, but if we take a step back and look at the program since it first started, the numbers become even more staggering. To date, Apple has repurchased about $28 billion worth of its own shares, leaving it with about $32 billion to spend on future stock buybacks. With respect to returning cash to shareholders, Apple since 2012 has paid out approximately $15.8 billion to shareholders via quarterly dividend payments. All told, Apple has already spent $45.2 billion as part of its capital program.
Apple files Preliminary Proxy Statement with SEC, urges shareholders to oppose Carl Icahn's share buyback proposal
Apple on Friday posted its Preliminary Proxy Statement with the SEC. The statement provides notice that Apple's annual shareholders meeting is scheduled to take place in 2014 on Friday, February 28. The meeting will see shareholders consider five proposals, one of which is activist investor Carl Icahn's proposal that Apple increase its stock buyback program by a minimum of US$50 billion. Apple, though, is of the position that shareholders should vote against Ichan's proposal. Apple, in its proxy statement, makes a point of noting that, while it opposes this specific proposal, it remains intent on returning profits to shareholders and is open to shareholder input in this regard. But rather than jumping on board with Icahn's proposal, Apple writes that it prefers to take a more measured approach that sees cash returned to shareholders "on an efficient and sustained basis." That said, Apple notes that it will continue to evaluate the state of its capital return program and will adjust it as need be in order to maximize the long-term interests of its shareholders. Apple further adds that because it operates in an extremely competitive and fast-moving industry, it's imperative that it maintains enough cash on hand to be able to take advantage of opportunities as they arise. The proxy statement reads in part: With breakthrough products and services such as the Mac, iPod, iPhone, iPad and App Store, the Company has created huge market opportunities, and the Board and management team believe the opportunities that lie ahead are just as exciting. Given such large and global markets, the Company competes with large companies around the world, many with their own significant technical capabilities and significant capital. This dynamic competitive landscape and the Company's rapid pace of innovation require unprecedented investment, flexibility and access to resources. Successfully innovating and executing against these large opportunities also requires careful stewardship by the Board and management team, and the Company's evaluation of capital return is conducted in the context of supporting the Company's continued business success and desire to deliver attractive returns to long-term shareholders If history is any indication, investors should be confident that Apple won't be shy about increasing its capital return program. If you recall, Apple first announced a quarterly dividend and share repurchase program of $45 billion in March of 2012 and subsequently more than doubled the program to $100 billion just one year later. That said, the proxy statement indicates that any changes to the program will be announced by March or April of 2014. As a point of interest, Apple notes that it has, to date, spent $23 billion on share buybacks and $43 billion in quarterly dividend payouts. Another shareholder proposal on the docket is whether or not Apple should create a new committee to keep tabs on human rights issues in Apple's supply chain. On this topic, Apple also urges shareholders to vote no. Apple relays that it's already doing a whole lot in this regard and that creating a new committee would be duplicative. Specifically, Apple emphasizes that it is "committed to the highest standards of social responsibility and human rights wherever we do business." The proxy statement reads in part: In addition to monitoring and driving improvements for workers in the supply chain, the Company places strong emphasis on education and worker empowerment initiatives. The Company has established a training program for new employees at the Company's suppliers to inform them of their individual rights, local laws and the Company's Supplier Code of Conduct. Millions of workers have participated in this training program. The Company also partners with educational institutions to offer free college-level courses to workers who make the Company's products. Hundreds of thousands of workers have attended these classes since 2008, and many have gone on to earn associate's degrees. The Company recently expanded this educational program to offer more opportunities for participants to work toward a bachelor's degree. ... In December 2013 the Company was awarded its 12th consecutive perfect rating from the Human Rights Campaign's annual Corporate Equality Index, which scores businesses based on lesbian, gay, bisexual and transgender workplace policies, and won the title of "Best Places to Work for LGBT Equality." The Board does not believe that establishing a committee is an effective way for the Company's practices and goals to continually evolve and improve in response to changing conditions. Instead, such an additional and redundant committee would distract the Board from its other responsibilities to the Company and its shareholders, while adding little value to the Company's existing commitment to human rights and social responsibility. The Company's existing governance framework has produced a strong commitment to human rights and progress that is evident in the Company's practices and policies.
A quick look back at Apple's dividend history
While Apple during the Steve Jobs era wasn't too keen on doling out dividends, Tim Cook has taken steps to return boatloads of money back to shareholders. This past April, Apple more than doubled its capital return program when it increased its quarterly dividend of US$2.65 by 15 percent and authorized the repurchase of $60 billion worth of outstanding shares. As it stands today, Apple's current quarterly dividend is $3.05. By way of contrast, Microsoft's quarterly dividend checks in at $0.28. Financially speaking, Apple is unquestionably sitting pretty. To provide a bit of a historical context to Apple's quarterly dividend, I thought it'd be helpful to look back to a time when Apple previously issued dividends; from 1987-1995. Thankfully, Apple has all the requisite data charted out for us over here. Between April of 1987 and February of 2005, Apple's quarterly dividend amount ranged between $0.06 and $0.12. Over that eight-year period, Apple cumulatively paid out $3.74 in dividends. At Apple's current dividend levels, Apple pays out more than that in just two quarters. However, if we factor stock splits into the equation (one in 2000 and another in 2005), it follows that Apple in just the last quarter alone doled out more in dividends than it did over the aforementioned eight-year period.
Apple to pay quarterly dividend today for AAPL shareholders
AAPL investors take note: Today is the company's payday for AAPL shareholders. By the close of market today, Apple will pay shareholders of record its quarterly dividend of US$3.05 per share. Shareholders must have held the stock no later than Wednesday, November 11 to get this quarter's dividend. As AppleInsider notes, at AAPL's current price of around $520 a share, the company is paying a dividend yield of 2.35 percent, which is not at all bad for its investors. What's especially interesting is that since Apple upped its share buyback program by $50 billion earlier this year, the company will actually be paying out $143 million less in dividends this quarter due to fewer shares of AAPL on the market. That buyback isn't enough for some people however, as Carl Icahn is pushing Apple to buy back shares worth $150 billion.
Strapped-for-cash Vivendi goes looking in Activision Blizzard's till
Financially strapped conglomerate Vivendi wasn't able to sell off its controlling interest in Activision Blizzard, but it's looking to get money out of the $4.4 billion cash and asset-flush publisher through other means. The Financial Times (via Reuters) reports Vivendi will try some boardroom maneuvers to obtain a massive payout. Coincidentally, the play Vivendi is reportedly trying to pull off is nearly identical to a theory published by Wedbush Securities analyst Michael Pachter in May. And it goes a little something like this: July 9 (tomorrow) is the five-year closing date of the $18 billion Activision and Vivendi merger, which means Vivendi will have the ability to nominate a majority of Activision's board of directors. After that, the board could take out a mega loan, and initiate a dividend (a standard payment given to shareholders). "Borrowing of $5 billion would permit a dividend of $8.5 billion. As the holder of 61 percent of Activision's common stock at March 31, 2013, we estimate Vivendi would receive approximately $5.2 billion in cash, easing its mounting debt concerns," wrote Pachter. Pachter told Joystiq in follow-up, "Vivendi needs money and as of tomorrow, controls Activision. Activision has money. It's pretty easy to reach an appropriate conclusion from those two facts." If you're wondering why Vivendi doesn't just find a buyer for its Activision shares instead of all this intrigue, Vivendi currently owns 702 million of Activision's 1.15 billion outstanding shares. At face value, that's worth $10.15 billion. Vivendi can make half that and keep its ownership of Activision through this other maneuver.
Apple's first $3.05 quarterly dividend payout scheduled for tomorrow
Back in April, Apple gave shareholders yearning for a bigger cut of Apple's profits something to be happy about. Specifically, Apple a few weeks ago announced that it was upping its quarterly dividend by 15 percent, raising it from $2.65 a share to $3.05 a share. Apple's first dividend payment under the increased amount is scheduled to go down tomorrow. Shareholders with shares that were purchased on or before May 9, 2013 will be eligible for the increased quarterly dividend. Since Apple first announced its increased quarterly dividend, along with a massive increase to its stock repurchasing plan, shares of the company have gone up by 7 percent. Apple noted in a press release at the time that it is now one of the largest dividend payers in the world, "with annual payments of about $11 billion."
The clever economics behind Apple's $17 billion bond offering
Apple on Tuesday raised $17 billion via a bond offering as part of its recently announced capital program which aims to return $100 billion to shareholders by the end of 2015. Apple's capital return program is comprised of two components: an increased quarterly dividend of $3.05 a share and a $55 billion stock repurchasing program. To help finance its new plan, Apple decided to issue debt, prompting many to wonder why the company didn't dip into its $145 million cash hoard. The answer is that $100 billion of Apple's cash lies overseas. Consequently, Apple would be subject to unfavorable income tax rates if it brought that cash back to the U.S. So instead, Apple chose to borrow money at extremely low rates to help fund its capital return program. The appeal is that the interest Apple will owe on its issued debt will be markedly lower than the income tax it'd be charged if it repatriated its foreign stockpile of cash. That certainly makes economic sense, but there's even more cleverness behind Apple's stock repurchasing plan and dividend increase than most people realize. Apple this week issued bonds with maturities of 3, 7, 10, and 30 years. While the rates on each type of note vary depending on the duration, the weighted average of Apple's interest rates comes out to about 1.85%, which if you do the math, amounts to approximately $314 million in interest payments. As Evan Niu of The Motley Fool points out, there are some interesting cost savings going on behind the scenes that may not be readily apparent at first glance. Here's a quick breakdown: Apple currently is trading in the $447 range. Using the 1.85% interest rate from above, we see Apple will be paying back about $8.26 in interest for each $447 share that it repurchases. At the same time, each share that Apple repurchases will no longer be a share it has to pay a third-party dividend on. Given Apple's new quarterly dividend of $3.05, each repurchased share of Apple will free up $12.20 (4 x $3.05) that Apple would otherwise be paying as an annual dividend. "It's like Apple is paying $8 to save $12," Niu writes. What's more, the $8/share Apple will repay as interest is completely tax deductible. In contrast, the $12.20 in annual dividend payments per share is not tax deductible. The Financial Times adds: Gerald Granovsky, an analyst at Moody's, said: "If you assume the statutory 35 per cent corporate tax rate, based on the data available and on a back of the envelope calculation, to generate in the US the equivalent of $17bn the company would need to repatriate $26bn. 'That is less attractive than paying the $300m in interest attached to this bond sale,' In essence, Apple is exchanging non-deductible and more expensive dividend payments for tax deductible interest payments while purchasing back shares at relatively low price-points. All the while, its billions of dollars in overseas cash remains untouched and untaxed.
Apple already taking steps to prepare for its upcoming debt sale
Apple last week announced that it would embark on a massive stock repurchasing plan whereby it will purchase US$60 billion worth of its own shares by the end of 2015. In a press release on the matter, Apple called it the "largest single share repurchase authorization in history." What's more, the company also announced a 15 percent increase to its quarterly dividend, upping the payout from $2.65 to $3.05 per share. Taken together, Apple's capital return program is designed to return a total of $100 billion to shareholders. That's a lot of dough, but with upwards of $145 billion in the bank, there's no denying that Apple has the cash to make that happen. There's just one slight problem -- the bulk of Apple's cash is overseas and would be subject to a corporate income tax rate of 35 percent should Apple try and bring it back to the US. That being the case, Apple has opted to keep its cash overseas and fund the bulk of its capital return program via the issuance of debt. Now, just one week after making its initial announcement, Reuters is reporting that Apple has already begun taking steps to secure funding for its capital return program, including contacting both Goldman Sachs and Deutsche Bank and filing the requisite SEC paperwork. The only major tech company without a penny of debt on its books, Apple stunned the markets last week by announcing it could sell debt for the first time to help fund a $100 billion capital return program for shareholders. Any bond offer from the makers of the iconic iPhone and iPad would be highly sought after by investors, and it is believed the company could raise funds at a cheaper rate than even Triple A-rated Microsoft. That Apple would turn to the debt market to help fund its $100 billion expenditure isn't all that surprising. Apple has long lobbied for a tax holiday wherein it would be able to repatriate its cash hoard to the United States at a much lower tax rate. Besides, if Apple can issue debt on favorable terms, why not take advantage of it? Fortune adds: Apple's decision to tap the debt market comes at a time when borrowing is cheap. The Federal Reserve is holding interest rates near record lows and the average yield on investment grade US corporate debt is around 2.6 percent, according to RBS credit strategist Edward Marrinan, who said companies with a AA-rating like Apple's can borrow at a rate of less than 2 percent. As for Apple's increased dividend, the company will next issue a dividend payout on May 16.
Daily Update for March 19, 2012
It's the TUAW Daily Update, your source for Apple news in a convenient audio format. You'll get all the top Apple stories of the day in three to five minutes for a quick review of what's happening in the Apple world. You can listen to today's Apple stories by clicking the inline player (requires Flash) or the non-Flash link below. To subscribe to the podcast for daily listening through iTunes, click here. No Flash? Click here to listen. Subscribe via RSS
Liveblogging Apple's 'cash balance' conference call
Apple's already told us exactly what to expect on this so-called 'cash balance' conference call, but what they hey -- we'll be liveblogging it just in case Appel slips in that "one more thing." You know, that "thing" about spending a few billion on an Apple-shaped spacecraft for kicks and giggles. The call will get underway at 9AM ET, and we'll have quotes from CEO Tim Cook and CFO Peter Oppenheimer, as well as any juicy questions from the media. March 19, 2012 9:00 AM EDT
Investors eyeing Tim Cook's management of Apple's cash horde
Every three months Apple announces its quarterly earnings, and we see the company's huge pile of cash grow to increasingly awe-inspiring heights. Like clockwork, a day or two after the earnings announcement comes calls for Apple to give some of that money back to its shareholders in the form of dividends. Reuters claims that these calls for dividends are getting louder, and some investors are getting restless. Apple's US$98 billion cash horde is so big that it represents a value of $104 per share, a big slice of the current $444 per share stock value. Several Wall Street analysts are convinced that Apple will pay a dividend to investors in 2012, but they say that every year. Apple has not paid dividends on its stock since 1995, and Apple CFO Peter Oppenheimer has stated that the money isn't burning a hole in Apple's pockets. CEO Tim Cook and Oppenheimer revealed that Apple is actively looking at what to do with its money, but neither of the executives would commit to a firm comment on the company's intentions. One major stumbling block is that most of Apple's cash is tied up overseas -- $64 billion of its $98 billion. Repatriating that money to the US would subject it to a 35 percent tax, skimming over $22 billion off the top... something that Apple has lobbied against. Within the next few days I predict we'll see another wave of posts predicting huge company acquisitions -- finish your drink if you see "Apple could buy Facebook" in your RSS reader before the end of the week. That's also an unlikely scenario; Apple has a history of buying smaller companies that aren't already household names, and it usually only drops a few billion dollars in the process. Much like the iPad cannibalizing the Mac, I suspect Apple's executives see the company's cash stockpile as a nice problem to have. It affords the company a great deal of flexibility; Apple could make zero dollars in revenue for the next seven straight years and still be able to sustain its current operating expenses. With dividends and major acquisitions likely out of the picture, there's no way of knowing what Apple intends to do with its money... though I have my own loony ideas about that.
News roundup: Trek artists muse Apple design, Illustrator CS5 patched, Apple urged to pay dividends, free apps and more
Each week is busy and with summer winding down and several of us on vacation, we can't hit it all at once. So here's a little roundup of what happened over the past few days. Ars Technica has a lovely chat with some designers from Star Trek: The Next Generation, the show where you may recall seeing an iPad-like device called the PADD (for Personal Access Display Device). You may be surprised to discover all those flat control panels were designed that way, in part, because they were cheaper than a panel with a bunch of physical buttons. As Apple keeps piling up cash ala Scrooge McDuck, some folks are calling for the iCompany to start doling out that cash back to stockholders in the form of a dividend. It's a familiar refrain (Microsoft gets this one frequently as has Google), although we're not so sure Apple won't need that cash in case the economy tanks again or in case they need to buy Facebook or Nintendo. Illustrator CS5 had a bug, and Adobe patched it. Well, it was actually a pretty significant bug for people running professional work Macs and who had more than 4GB of RAM. Apparently the app would cause all sorts of bad things to happen. But this patch makes it better, so apply it now if you haven't already. Free apps! Toodledo is usually around $3 but is currently free. If you've been wondering what the hubbub about Scott Pilgrim is, you can download six volumes of the comic on your iPhone or iPad. Duck Hunt is also free today for your retro arcade pleasure. MacRumors reports that Apple has hired a NFC (near-field communications) expert, which could herald ticketless concert trips for iPhone users, or the ability to buy stuff by just waving your iPhone around like an idiot. The future is soon!
On Apple's $40 billion, and the question of dividends
AAPL has been hitting new highs just about every day. Yesterday the stock price hit an intra-day high of $230.20, a lofty height indeed. We pointed out earlier that Apple now has the fourth largest market cap of any publicly traded domestic company, so maybe it's time to revisit the question of Apple declaring dividends on its stock. Apple has not declared a dividend since December of 1995. After the last shareholder meeting, Steve Jobs stated that the money was best left in the bank so there would be no question of loans if something big was to be bought. "The cash in the bank gives us tremendous flexibility," explained Steve. The Motley Fool makes an interesting case in favor of dividends. Apple has no history of massive acquisitions, and keeping $40 billion around for just that reason sounds less than reasonable. A case is also made for keeping the money as preparation for the next big recession. This doesn't seem to hold much water, however, since analysts predict that Apple will grow by 18% per year for the next five years. That should provide more than enough cash, predicting that Apple will report net income of around $21 billion in 2014. Of course, predictions are often wrong, but Apple has been excellent when it comes to beating expected earnings numbers for some time. 77% of informal Motley Fool poll respondents think that Apple should declare dividends. After all, that cash is really owned by the stockholders and it seems that a good number of them would like to get some of it back. Read on for another view.
No Apple stock split...for now.
Thursday, Briefings.com, CNBC and a passel of other market analysts predicted that a 4 for 1 stock split would be announced at the Apple Shareholder Meeting. This rumor moved the market, but there are conflicting opinions to why. First, for the uninitiated, a stock split is a zero sum game. One interpretation is that a firm considers its stock too highly priced for the average consumer and decides to split. For example, let's say that Apple is trading for $200 and you have one share. If a 4 for 1 stock split takes place, you will wind up 4 shares, instead of 1, but each share will be valued at $50. Did you gain or lose any money? No. It's all on paper. However, to those not familiar with the Buttonwood tree, and that's a lot of us, it sounds like 'quick buy Apple and you'll be getting 4 times as much'. The case for this sort of stupidity is well made by Barrons. Stock splits are nothing new to AAPL. They've split 2 for 1 three time in the past, in June 1987, June 2000 and February 2005. There are two general schools of thought on the reason behind stock splits, and they are total opposites. The first theory is that a company will split a stock if it is in trouble to allow lower dollar investors to buy their shares at half the price and thus incur less risk. The other school of thought is that a good company realizes their stock is just too expensive for the small trader who has some cash on the sidelines. It is meant to give the small guy an easier way to buy some stock without needing to commit the $200 for a share. Both sides have their points and, to an extent, both points are based on smoke and mirrors since they do not effect the worth of the company or the aggregate value of the stock by one penny.
