Apple (NASDAQ:AAPL)’s cash hoard has been under attack for months. Famed hedge fund manager David Einhorn led the fight, taking his stand to the courts to ensure that Apple Inc. (NASDAQ:AAPL) kept open every possible outlet for cash to flee to shareholders.
Last Wednesday the company announced that it would increase its dividend by 15% and repurchase an additional $50 billion of its own common stock. It will also displace $1 billion of stock grants to cover any stock option compensation.
Here’s why I feel the announcement didn’t get a strong response from Wall Street:
The dividend could have been better
Rarely do companies announce a dividend and then increase it again by 15% just nine months later. So Apple Inc. (NASDAQ:AAPL) gets some credit for upping its dividend after Wall Street yanked on its chain to do so. However, the company should have gone bigger. At the current rate of $3.05 per share, Apple yields 3%.
Other tech firms meet and exceed Apple’s current dividend yield. Intel Corporation (NASDAQ:INTC), Microsoft Corporation (NASDAQ:MSFT), and Cisco Systems, Inc. (NASDAQ:CSCO) all pay more than Apple Inc. (NASDAQ:AAPL). If the goal is to maximize shareholder value, why not aim to be the leading yielder in your space?
It would certainly be affordable, and the cost would dwindle as shares are repurchased.
The buyback will be slow
Companies have to balance the timeliness and effectiveness of a share repurchase program. If they repurchase shares too slowly, there is little to no effect on the stock price – and the company may just end up buying shares at higher prices later.
A quick repurchase program risks flooding the market with buy orders and driving the stock price higher only for short-term speculators. It also brings front-running traders, who buy ahead of a large repurchase only to sell their shares back to the company at a higher price.
Apple Inc. (NASDAQ:AAPL)’s repurchase authorization of $60 billion will not be complete until the end of 2015. That gives Apple a lot of time – ridiculous amounts of time – to repurchase less than 20% of its equity at the current market price. Some $6 billion of Apple stock trades hands each day. Apple could certainly afford to speed up its repurchase schedule.
Apple Inc. (NASDAQ:AAPL) has an opportunity to acquire much of its shares outstanding ahead of the next WWDC, which is slated for June 10-14. If it believes strongly in its future products, a repurchase ahead of WWDC would indicate more confidence in the next slate of Apple products.