He said “They’ve done so well that they’ve ended up with a stockpile of cash that exceeds the market capitalization of all but 17 companies in the S&P 500.”
He proposes that Apple Inc. (NASDAQ:AAPL) use about $47 billion of the cash and create a new class of preferred stock, called “iPref, which would be priced at $50 per share and pay a $0.50 quarterly dividend. Apple pays $2.65 per share every three months on its common stock right now. Mr. Einhorn filed a lawsuit, and a federal judge ruled in his favor late on Feb. 22 which could clear the way for a shareholder vote on preferred shares.
Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has called all the talk about the excess cash a “sideshow” and is a distraction for the company. Things could get interesting at the Apple annual shareholders meeting on Feb. 27.
Mr. Einhorn stated that Apple Inc. (NASDAQ:AAPL) should follow the lead of other companies which routinely return cash to shareholders.
One such company is International Business Machines Corp. (NYSE:IBM) . IBM has spent about $100 billion over the last decade or so on stock buybacks, reducing the number of outstanding shares by 1/3 and it has grown its dividend by over 400%. The result has been a 6-fold increase in EPS and a tripling of the stock price in spite of relatively flat revenue growth.
Another company that has made effective use of its cash position is McDonald’s Corporation (NYSE:MCD). The maker of Happy Meals and Big Macs now has 20% less shares and EPS has grown by 7 times over the past ten years. The company has nearly doubled its dividend and the total stock price return has been over 400%. McDonald’s revenue, although slowing down slightly over the last year or so, has increased at a brisk 5.3% compounded annual rate since 2003.
The conglomerate United Technologies Corporation (NYSE:UTX). has only reduced the number of shares by 2.3%, but it has increased its dividend at a healthy 14.8% average annual rate since 2003. This has lead to EPS growing by 150% and the stock price increasing by 280%. The company, a member of the Dow Industrials since the 1930’s, has announced it plans to increase the pace of stock buybacks this year after taking a break in 2012 in order to fund its acquisition of the former Goodrich, which was undertaken in a bid to capitalize on projected growth in the aerospace market over the rest of the decade.