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.

Apple Inc. (AAPL): How Much Returning Cash Really Matters: Research In Motion Ltd (BBRY), Google Inc (GOOG)

A recent report suggested that Apple Inc. (NASDAQ:AAPL) could bring its focus towards increasing dividends or buying back shares. The report cited excessive cash, a decline in share price, and shareholder activism as reasons the computer giant would consider returning cash to shareholders. Apple Inc. (NASDAQ:AAPL) has more than $137 billion, but a large chunk is overseas.

Apple Inc. (NASDAQ:AAPL)

While investors generally seek companies that have a shareholder-friendly management willing to maximize value for investors, for Apple, it is different. The technology sector is fiercely competitive and any distractions that take away money or resources from innovation will eventually hurt the company. For Apple Inc. (NASDAQ:AAPL), the competition is escalating exponentially.

First, Research In Motion Ltd. (NASDAQ:BBRY) exhibited strong momentum for its new BlackBerry 10. Investors could assume the company will fail to gain traction in the United States, as BlackBerry 10 is now available. This assumption could also be incorrect. Investors should watch for Apple iPhone users switching to BlackBerry because they want something different.

Second, and more seriously, is Google Inc (NASDAQ:GOOG) Android. Samsung’s Galaxy S IV was announced on Mar. 14. Meanwhile, the HTC One will be released as early as April. Google’s Nexus 4 was in high demand during the holidays and its sales were restrained only due to the lack of availability.

No Apple innovation

Apple Inc. (NASDAQ:AAPL) expended a tremendous amount of resources in developing and launching its own mapping software, when Google Maps could have been sufficient. Launching an incomplete product tarnished its reputation. Even though iPhone 5 sales were more than respectable, investors voted against Apple by driving shares lower.

An iPad Mini was launched to enable the company to compete against Android at the lower-sized tablet segment. Profit margins for the iPad were solid, but the mini cannibalized Apple’s own iPad sales.

Investors questioning management

Einhorn’s surprise legal win against Apple adds doubt for investors towards management. In its legal battle against Samsung, the federal judge ordered a new trial on damages for some of the products at issue. $450.5 million was also cut from the damage claims.

Management still deserves credit for operational excellence: Apple took 72% of all handset profits worldwide. In contrast, Samsung took 29%. Looking ahead, IDC predicts that Apple will face growing competition from Android-based tablets. Investors appear to sense the growing threat for Apple. Shares are down 19% in the year-to-date. The stock is currently valued at a P/E of 9.7, with a forward P/E of 8.52. Apple is valued so low that Dell Inc. (NASDAQ:DELL) has a higher P/E (at 10.6).

In the short-term, investors are placing their faith in Android and Apple Inc. (NASDAQ:AAPL)’s smaller competitors, Blackberry and Nokia. Investors should keep in mind that Apple shares are up over 12-fold since 1995, while Blackberry, Nokia, and Google returned far less in that same time period.

Apple Chart

6 Month

1995 – Present

Data Source: Yahoo Finance

Dividend inconsequential to cash flow

With a 938.8 million share float, Apple currently spends nearly $10 billion per year in dividends, which yields 2.47%. Microsoft Corporation (NASDAQ:MSFT) currently pays a dividend that yields 3.3%. Apple needs to increase dividend payments by $2.06 billion to match yields offered by Microsoft.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.