Apple Cashback Plan: How Will Investors Respond to $100 Billion in Stock Buybacks and Dividends?

Michael Teague |

Tim Cook, CEO of Apple, Inc.Commenting on the goings-on of computer company Apple (AAPL) has for some time now constituted an industry in itself. Since the company’s shares embarked on a sharp downward turn last September that has shown no signs of abating, this would-be industry has been picking up steam.

Ahead of Apple’s earnings report on Tuesday, it had positively gone in to overdrive. For all the anticipation, however, the numbers presented an outline of the company’s current predicament that is for all intents and purposes in keeping with what is already known.

Apple came in ahead of expectations in key areas during the first quarter. Net earnings were $9.5 billion, or $10.09 per share on revenue of $43.6 billion, beating analysts’ estimates of $9.98 per share on $42.3 billion in revenue.

The company sold 37.4 million iPhones, a healthy jump from the expected 36.5 million, while 19.5 million iPads were sold, well ahead of the estimated 18.3 million. On the other hand, Apple sold 5.6 million iPods though they were supposed to sell 6.25 million, and sales of Macs were off by about 100,000.

Even with all the negative press surrounding the company of late, none of the above should have come as much of a surprise. The fact that everyone will be contending with for some time, and regardless of how well or poorly Apple does in the near to mid-term, is its entrenched position as an innovator and leader in the mobile market in particular, and in computers in general.

The more legitimately worrisome elements of the report were to be found, for instance, in the company’s gross margin, which came in at 37.5 percent, shy of the 38.5 percent estimate, suggesting that fears about a slow-down in growth were on the mark. This was further confirmed when CEO Tim Cook drastically cut the forecast for the current quarter, saying that sales would be between $33.5 and $35.5 billion, shy of analyst estimates of $38.4 billion. He did the same for gross margin, which was scaled back from estimates of 38.7 percent to a range of 36-37 percent.

The slow-down in growth can certainly be attributed to one rival in particular. Samsung, whose recently released Galaxy S4, with its Android platform and larger screen, have been helping the company bite into Apple’s share of the smartphone market.

However, growth problems have just as much to do with the company’s lack of new product offerings. The iPhone 5 that was released last year was already seen by many as a repackaging of the previous version of the phone, and much the same has been said of the iPad mini.

Apple’s reticence with regard to upcoming products, with almost no official statements of any substance amid a constantly rumor-mill of iTVs, iWatches, and iGlasses, coupled with what often seem more like prevarications about if or when it actually will release an upgraded iPhone 5, or just a cheaper model of the iPhone, only make matters worse. Without any word from the company, investors have begun to fill in the blanks themselves, with some assuming that Apple is simply out of innovations to offer to its customers.

On the brighter side, the company will hopefully have put to rest a good deal of the hysteria surrounding its $145 billion cash reserve by announcing that $100 billion of that will be returned to investors through buybacks and dividend payouts by the end of 2015.

The company raised its quarterly dividend by 15 percent, from $2.65 per share to $3.05, and more than significantly upped its share-repurchase program from $10 billion to $60 billion.

As for innovations, Cook had the following to say “I don't want to be more specific, but I'm just saying we've got some really great stuff coming in the fall and across all of 2014,” which would seem to contradict recent reports of at least an updated or cheaper iPhone by the end of the current quarter. As usual, the comment was totally equivocal and left yet more room for potentially meaningless speculation.

At the end of the day, not all that much has changed. Apple is still the leading producer of high-end mobile products whose grip on the market is loosening due to a flood of competition from cheaper products from highly competitive rivals. Its stock, while holding at just over $400 per share, is still incredibly cheap at 9 times earnings.

Investors can still expect the company shares to soar in the event the company comes out with another game-changing release. This could even happen for a release that turns out to be something in between game-changing and repackaging, if Apple’s customers find it useful enough. The only difference is that shareholders will be rewarded for their patience with a larger dividend, and more valuable shares.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 113.95 0.86 0.76 22,503,060
CME CME Group Inc. 106.12 0.41 0.39 1,023,388

Comments

Emerging Growth

Naked Brand Group Inc

Naked Brand Group Inc through its wholly-owned subsidiary is engaged in manufacturing and selling of direct and wholesale men's undergarments to consumers and retailers.

Private Markets

Wealthfront

Wealthfront is an automated investment service that serves as an alternative to traditional financial advisory services. The company manages a diversified, continually rebalanced portfolio of index funds on their clients’…

Cross Campus

With over 500 members and operating 80,000 square feet by summer 2016, Cross Campus is one of the country’s top ten shared, collaborative office or "coworking" operators in the US.…