8 ms·

Dividends are taxed like ordinary income (IIRC), so paying dividends would be sending money out to shareholders, it gets reduced by taxes, and then the sharehol

by nirvana 15y ago

Dividends are taxed like ordinary income (IIRC), so paying dividends would be sending money out to shareholders, it gets reduced by taxes, and then the shareholders have to figure out what to do with it that would return as much as Apple would. The best return would thus be likely re-investing it in Apple shares. Its then a smaller amount, due to taxes and thus there's no really positive effect of it. I think the mainstream thinking about dividends isn't quite right-- the value of each Apple share goes up a dollar for every dollar they retain, and more than a dollar for every dollar that Apple can re-invest in its business at a profit. This is why, for instance, Warren Buffett doesn't pay dividends in Berkshire Hathaway. Apple is a very fast growing technology stock. It's really not the kind of company that should pay dividends because it has lots of opportunities to invest that money profitably. Its quite possible that Apple is contemplating a $50-$70B acquisition that is very strategic.

rdl 15y ago
Dividends are taxed like...dividends. Through 2012, qualified dividends are taxed at 0% or 15% depending on the recipient's income, same as long term capital gains. It is very likely there will continue to be favorable tax treatment of dividends (maybe LTCG and Dividends both at 20%) after 2012. Apple isn't an investment conglomerate; it doesn't have as many ways to invest money as a company like Berkshire. Part of the issue is that a good bit ($55b of about $80b as of September 2011) of Apple's cash is overseas, but it's unlikely Apple would pay out a large enough dividend to seriously deplete even the US cash hoard. There is an argument that Google, Apple, Cisco, etc. are all waiting for a special "5% tax on repatriated income" tax holiday in 2012+ (like in 2004) to bring back a lot of it. It's all income on which US tax has not yet been paid, so paying 5% vs. 35% would be a big win. It is definitely up to Apple whether they do share buyback vs. dividend, but once your cash is clearly beyond There is near zero chance Apple would make a $50-70b acquisition. They have never done that. If they suddenly deviated from their (successful) strategy, it would probably tank Apple's stock twice -- both less cash and an ineffective and risky use of the cash, distracting to Apple's core product, and would call into question both the executive leadership and the board of directors. I'd be surprised to see Apple make purchases beyond $1-5b, and even that would really be pushing it.
- 2arrs2ells 15y ago
  I agree with the parent - no way would Apple want to do a massive acquisition. I also agree with the grandparent, Apple is unlikely to part with its cash soon. All the cash is Apple's "war chest" - it's let them do innovative things with their supply chain (prepay for ~$1bn in parts to get a substantial discount), it's let them fight a massive patent battle (we'll see if this pays out), and gives them all sort of flexibility moving forward. Could they do all of the above things with less than $100bn in the bank? Of course, but the massive cash hoard allows them to continue doing the activities above, even if sales/growth slow down.
  - rdl 15y ago
    Normally what you'd do at a mature company in a mature industry (oil, finance, etc.) is pay out 10-30% of your earnings, one or two times per year (or maybe quarterly). Apple would still keep (and keep adding to) its war chest. Wall Street does heavily penalize companies which have started paying dividends if they ever cut the dividend (or end it), much more than it rewards companies for paying the dividend in the first place. It's tricky -- tax policy (which does change over time), earnings, other uses of capital, and market expectations, all change.
- jonhendry 15y ago
  "Part of the issue is that a good bit ($55b of about $80b as of September 2011) of Apple's cash is overseas" This would probably be a great time to start iOS/OS X software companies outside the US. Give Apple something to spend its overseas cash on.
  - rdl 15y ago
    There is probably $2-3t in cash overseas in the form of deferred corporate profits, so US companies could do a lot of overseas acquisitions, indeed.
ajkessler 15y ago
Most dividends are taxed at the appropriate long-term capital gains rate, for now: http://en.wikipedia.org/wiki/Qualified_dividend http://en.wikipedia.org/wiki/Qualified_dividend
- lostlogin 15y ago
  I could be wrong here, but those rates appear to be just for the US. I think I read somewhere that only about half of what Apple has is sitting in the US ($66 billion comes to mind).
philwelch 15y ago
Without paying dividends, how is a stock any more an investment than baseball cards?
- beatle 15y ago
  Capital gains
  - philwelch 15y ago
    There's no rational reason for a stock's value to go up just because the company does well if it doesn't mean the company will pay out dividends. That's just baseball cards: i.e. your Alex Rodriguez card will be worth more if Alex plays well, unless for some irrational reason other baseball card collectors feel otherwise.
    - beatle 15y ago
      Wrong. I suggest you read up on the subject. http://en.wikipedia.org/wiki/Share_price http://en.wikipedia.org/wiki/Share_price
      - philwelch 15y ago
        Can you point out what in that article backs up your argument? I'm not finding anything relevant.
    - repsilat 15y ago
      The actual rational reasons are, 1. If you get enough shares together you can influence the company's behaviour, (not relevant to most people) 2. If someone else wants to influence the company's behaviour they might be willing to pay for your shares, and 3. If the company goes under the shareholders might get something once it gets dissected (not really relevant to AAPL at the moment) In the case of a company in which all control is held by a majority shareholder who intends to hold 51% forever, you're absolutely right - the valuation of the 49% is almost completely arbitrary, giving no control or ownership in a meaningful sense.
nandemo 15y ago
> so paying dividends would be sending money out to shareholders, it gets reduced by taxes, and then the shareholders have to figure out what to do with it that would return as much as Apple would. The best return would thus be likely re-investing it in Apple shares. Your answer is essentially fine, but: 1) There's no reason you should assume an investor would re-invest dividends in Apple as opposed to AcmeCorp. The resulting portfolio might be less risky than either all-Apple or all-Acme. 2) It doesn't take into account that investors are also consumers, i.e., they might choose to not re-invest the dividends at all, and instead "buy stuff". For instance, a retiree might use it to pay the rent. 3) Transaction costs for selling a stock vs receiving a dividend. /nitpick
- justincormack 15y ago
  Indeed companies not spending or distributing cash is slowing US growth too. There are macrodisadvantages. And the complete aversion to paying taxes does not help the budget deficit.

by nirvana 15y ago

rdl 15y ago

Dividends are taxed like...dividends. Through 2012, qualified dividends are taxed at 0% or 15% depending on the recipient's income, same as long term capital gains. It is very likely there will continue to be favorable tax treatment of dividends (maybe LTCG and Dividends both at 20%) after 2012. Apple isn't an investment conglomerate; it doesn't have as many ways to invest money as a company like Berkshire. Part of the issue is that a good bit ($55b of about $80b as of September 2011) of Apple's cash is overseas, but it's unlikely Apple would pay out a large enough dividend to seriously deplete even the US cash hoard. There is an argument that Google, Apple, Cisco, etc. are all waiting for a special "5% tax on repatriated income" tax holiday in 2012+ (like in 2004) to bring back a lot of it. It's all income on which US tax has not yet been paid, so paying 5% vs. 35% would be a big win. It is definitely up to Apple whether they do share buyback vs. dividend, but once your cash is clearly beyond There is near zero chance Apple would make a $50-70b acquisition. They have never done that. If they suddenly deviated from their (successful) strategy, it would probably tank Apple's stock twice -- both less cash and an ineffective and risky use of the cash, distracting to Apple's core product, and would call into question both the executive leadership and the board of directors. I'd be surprised to see Apple make purchases beyond $1-5b, and even that would really be pushing it.

2arrs2ells 15y ago
I agree with the parent - no way would Apple want to do a massive acquisition. I also agree with the grandparent, Apple is unlikely to part with its cash soon. All the cash is Apple's "war chest" - it's let them do innovative things with their supply chain (prepay for ~$1bn in parts to get a substantial discount), it's let them fight a massive patent battle (we'll see if this pays out), and gives them all sort of flexibility moving forward. Could they do all of the above things with less than $100bn in the bank? Of course, but the massive cash hoard allows them to continue doing the activities above, even if sales/growth slow down.
- rdl 15y ago
  Normally what you'd do at a mature company in a mature industry (oil, finance, etc.) is pay out 10-30% of your earnings, one or two times per year (or maybe quarterly). Apple would still keep (and keep adding to) its war chest. Wall Street does heavily penalize companies which have started paying dividends if they ever cut the dividend (or end it), much more than it rewards companies for paying the dividend in the first place. It's tricky -- tax policy (which does change over time), earnings, other uses of capital, and market expectations, all change.
jonhendry 15y ago
"Part of the issue is that a good bit ($55b of about $80b as of September 2011) of Apple's cash is overseas" This would probably be a great time to start iOS/OS X software companies outside the US. Give Apple something to spend its overseas cash on.
- rdl 15y ago
  There is probably $2-3t in cash overseas in the form of deferred corporate profits, so US companies could do a lot of overseas acquisitions, indeed.

ajkessler 15y ago

Most dividends are taxed at the appropriate long-term capital gains rate, for now: http://en.wikipedia.org/wiki/Qualified_dividend http://en.wikipedia.org/wiki/Qualified_dividend

lostlogin 15y ago
I could be wrong here, but those rates appear to be just for the US. I think I read somewhere that only about half of what Apple has is sitting in the US ($66 billion comes to mind).

philwelch 15y ago

Without paying dividends, how is a stock any more an investment than baseball cards?

beatle 15y ago
Capital gains
- philwelch 15y ago
  There's no rational reason for a stock's value to go up just because the company does well if it doesn't mean the company will pay out dividends. That's just baseball cards: i.e. your Alex Rodriguez card will be worth more if Alex plays well, unless for some irrational reason other baseball card collectors feel otherwise.
  - beatle 15y ago
    Wrong. I suggest you read up on the subject. http://en.wikipedia.org/wiki/Share_price http://en.wikipedia.org/wiki/Share_price
    - philwelch 15y ago
      Can you point out what in that article backs up your argument? I'm not finding anything relevant.
  - repsilat 15y ago
    The actual rational reasons are, 1. If you get enough shares together you can influence the company's behaviour, (not relevant to most people) 2. If someone else wants to influence the company's behaviour they might be willing to pay for your shares, and 3. If the company goes under the shareholders might get something once it gets dissected (not really relevant to AAPL at the moment) In the case of a company in which all control is held by a majority shareholder who intends to hold 51% forever, you're absolutely right - the valuation of the 49% is almost completely arbitrary, giving no control or ownership in a meaningful sense.

nandemo 15y ago

> so paying dividends would be sending money out to shareholders, it gets reduced by taxes, and then the shareholders have to figure out what to do with it that would return as much as Apple would. The best return would thus be likely re-investing it in Apple shares. Your answer is essentially fine, but: 1) There's no reason you should assume an investor would re-invest dividends in Apple as opposed to AcmeCorp. The resulting portfolio might be less risky than either all-Apple or all-Acme. 2) It doesn't take into account that investors are also consumers, i.e., they might choose to not re-invest the dividends at all, and instead "buy stuff". For instance, a retiree might use it to pay the rent. 3) Transaction costs for selling a stock vs receiving a dividend. /nitpick

justincormack 15y ago
Indeed companies not spending or distributing cash is slowing US growth too. There are macrodisadvantages. And the complete aversion to paying taxes does not help the budget deficit.