Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

David Einhorn Has A Point: Show Us The Money, Apple Inc. (AAPL)

Page 1 of 2

David Einhorn, famous hedge fund manager at Greenlight Capital, recently made waves when he publicly took Apple Inc. (NASDAQ:AAPL) to task for guarding its purse strings too tightly.  Einhorn suggested that Apple unlock value for shareholders by issuing a boatload of preferred shares, paying 4% in perpetuity.  While I won’t say that Einhorn’s specific strategy is my favorite idea, I can definitely say that he has a point.  Apple Inc. (NASDAQ:AAPL)’s cash hoard is too huge, and it isn’t doing common stockholders any good rotting on the balance sheet.

Apple Inc. (NASDAQ:AAPL)

Other Big-Cap Tech as a Template

There’s currently a strange stigma attached to large-cap technology stocks that return cash to shareholders.  Many observers deride the decision, saying that a technology company paying dividends is an admission that the company’s growth days are over.  To illustrate this, many point to the fortunes of fellow tech firms Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC), which have painfully transformed from growth stocks to value stocks as a result of their decisions to return cash to shareholders via a dividend.

Financial pundits love to call Microsoft “dead money.”  In 2000, the stock reached almost $60 per share.  After the tech bubble burst, the stock fell to less than $30, and indeed has traded sideways ever since.  The fundamentals, meanwhile, painted a different picture.

In fiscal 2001, Microsoft booked diluted earnings per share of $1.32 on revenues of $25 billion.  Investors buying at $60 paid 45 times those earnings.  The fact is, over the next decade, Microsoft grew its sales and profits at compound annual growth rates of 10.7% and 7.4%, respectively–not exactly fitting the description of a “dead” company.

Ditto for Intel.  The stock traded north of $73 per share in the fall of 2000 before falling to the low $20s — exactly where it stands today.  Even using Intel’s most profitable year between 1991 and 2003, investors were paying more than 48 times those earnings at a price of $73.  The company, meanwhile, grew its revenues by more than 7% annually during the 10-year period of 2001-2011.

Microsoft and Intel didn’t become value stocks because they decided to pay dividends; they decided to pay dividends because they became value stocks.  Knowing that their shares would probably never be able to provide the growth rates that the market wanted, Microsoft and Intel decided to provide shareholders a return by paying big dividends.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!