Last week when Apple (AAPL) reported its first earnings slip in ten years and cut guidance for the remainder of 2013, the company seemed to have no choice but to offer some sort of incentive for investors to stick around.
The unprecedented, if totally understandable, decision last week to return $100 billion to shareholders by 2015 through a dividend hike that makes the payout the world’s largest, as well as a stock buyback program, was considerably amplified on Tuesday by the company’s announcement that it would finance this plan in part with a $17 billion bond offering.
The bond, the largest offering to date, comes at a time of high demand for bonds in general, and coincides well with interest rates being held at historic lows by the Federal Reserve. Last week, rival Microsoft issued its own offering worth $1 billion.
However, despite all that has been made of the company’s legendary $145 billion pile of cash, neither Standard & Poor’s nor Moody’s gave Apple’s bonds their top ratings.
The company’s more than adequate liquidity is belied by the unpredictable nature of a rapidly changing consumer market, one in which both innovative and less expensive forms of competition have already begun to take away some of Apple’s market share.
With much celebration surrounding this return of cash to investors, the company has managed to release some of the pressure on its other sore spot, the lack of a significant new product release. Whether Apple is out of ideas or whether it is simply being more circumspect about releasing new products in a far more competitive environment, there has been confused messaging even about an upgrade to the iPhone 5.
While investors seemed need time to warm up to Apple’s decision last week, Tuesday’s news got a more immediate reaction, sending shares up nearly 3 percent to $442.78 at the close, with over $50 billion of bond orders already. The Russian billionaire Alisher Usmanov even disclosed that he recently bought $100 million worth of the stock.
Along with the encroachment of competition from a number of fronts such as Samsung, Google (GOOG), Amazon (AMZN), and others, it is the product release issue and the company’s opaqueness about it that are part of the reason that Apple is largely no longer perceived as a growth stock. Without a truly ground breaking new product, it is hard to see how the company could regain this status.
Today’s bond offering, however, could be an indication that the company is serious about this abrupt change in strategy. If investors continue to react as positively as they did on Tuesday, this could mean that they too are prepared to accept the company as a dividend payer rather than the $700 per share growth stock it was not one year ago.
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