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 market growth 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?