5 ms·

I think a dividend is imminent because at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake. I

by dkrich 15y ago

I think a dividend is imminent because at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake. If there isn't a use for it in the long-term, and they can reasonably expect to print more, I agree that they should start dispersing it to shareholders. Typically I would think the beginning of a dividend program to be a signal that the company has hit an innovation wall and doesn't know what to do with its cash. I think this doesn't really apply to Apple because cash is going to continue to flow freely into it a ridiculous rate for the foreseeable future. Hardware is extremely profitable, and they are still better positioned than anybody else to ride the shift to mobile. I still think Apple is a strong buy.

beatle 15y ago
>at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake Actually majority of Apple's cash is invested in long-term and short-term securities so they are protected from inflation. I don't think Apple will pay a dividend. 1. the Massive increase in Apple's stock price is more than enough compensation for shareholders. A dividend will just be drop in the bucket compared to the capital gains investors are going to earn in the next months or years. Paying dividends at this stage is a waste of money. 2. Apple's PE is around 16. AAPL is still VERY cheap. Compared to Google(20) and Amazon(134), both companies not nearly as profitable as Apple. 3. There is still a lot of room for growth (TVs, China, NFC, etc.). 4. Stock buybacks is more tax-efficient compared to paying dividends since the investors will have to pay the 15% tax rate if they get paid dividends. 5. Share repurchase may FURTHER increase stock price since it will increase EPS, ROE (Return on Equity) and ROA (Return on Asset) and decrease PE. Improved financial ratios will make the stock look even more attractive to investors. CONCLUSION: Given these 5 factors. I believe Apple WILL NOT pay a dividend. Apple will instead perform a share repurchase.
- apaprocki 15y ago
  Completely with you and I hope it is a repurchase. Given the tax situation I don't see how a dividend would really be an effective use of the cash.
- xenophanes 15y ago
  Amazon's PE is very misleading. Their revenues are much higher than their profits and can be monetized more in the future. They aren't trying to maximize profits, currently.
- dkrich 15y ago
  Well, looks like we were both right.
  - beatle 15y ago
    looks like it :)
DavidSJ 15y ago
at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake Market expectations for inflation are usually factored into interest rates already. While the market could be wrong, Apple probably shouldn't get into the business of speculating on inflation rates.
- beatle 15y ago
  >Market expectations for inflation are usually factored into interest rates already. Actually that is not true. Historically Interest rates on currency-based investments have not caught up with inflation and taxes. Majority of Apple's cash is invested in long-term securities though so their investment is protected from inflation.
  - DavidSJ 15y ago
    Whether currency-based investments have historically provided positive real returns is an entirely separate matter from whether it is possible to time investment in currency-based investments based on expected future inflation rates.
philwelch 15y ago
> at the rate of inflation that is likely to occur over the next several years Do you have a reliable source on this? > Typically I would think the beginning of a dividend program to be a signal that the company has hit an innovation wall and doesn't know what to do with its cash. I think this doesn't really apply to Apple because cash is going to continue to flow freely into it a ridiculous rate for the foreseeable future. Apple's been building up this cash stockpile for so long that it's pretty clear they've long had more than they know what to do with. Having a cash position isn't really necessary either--at this point in time Apple could easily borrow at rates much lower than their expected return on investment anyway.
- dkrich 15y ago
  > Do you have a reliable source on this? Yes- it's called the Federal Budget. When the US continually runs a deficit and prints money to make up the difference, that cash goes into the economy without any real output in GDP. That causes currency devaluation, and in turn, inflation. Towards the end of 2008, $700 billion dollars were injected into the economy while the US was in the midst of running a multi-trillion dollar deficit. Taxes weren't raised, so that money came (an continues to come) from thin air. There is virtually no chance inflation does not steadily increase in the coming years. I can confidently say that because I see no reason to believe that there will either be a sudden burst in GDP to increase tax revenues, a reduction in spending, or an increase in tax rates sufficient to make up the difference. Remember, economic effects tend to lag. The mortgage crisis occurred after several years of irresponsible borrowing and lending.
  - runako 15y ago
    I'd be curious to hear more about your inflation expectations. Specifically, why Krugman et. al. are incorrect in arguing that the economics of stimulus work differently in a depressed economy (or why you think the diagnosis of the US as a depressed economy is incorrect). Also, I'd be curious as to why you think this didn't happen in Japan, and what are the critical differences in the US that will cause inflation here. I'm curious because I hear the "inflation must come" argument often, but I haven't heard it squared against Krugman and Japan. I'm not an expert, so any guidance would help my understanding.

by dkrich 15y ago

beatle 15y ago

>at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake Actually majority of Apple's cash is invested in long-term and short-term securities so they are protected from inflation. I don't think Apple will pay a dividend. 1. the Massive increase in Apple's stock price is more than enough compensation for shareholders. A dividend will just be drop in the bucket compared to the capital gains investors are going to earn in the next months or years. Paying dividends at this stage is a waste of money. 2. Apple's PE is around 16. AAPL is still VERY cheap. Compared to Google(20) and Amazon(134), both companies not nearly as profitable as Apple. 3. There is still a lot of room for growth (TVs, China, NFC, etc.). 4. Stock buybacks is more tax-efficient compared to paying dividends since the investors will have to pay the 15% tax rate if they get paid dividends. 5. Share repurchase may FURTHER increase stock price since it will increase EPS, ROE (Return on Equity) and ROA (Return on Asset) and decrease PE. Improved financial ratios will make the stock look even more attractive to investors. CONCLUSION: Given these 5 factors. I believe Apple WILL NOT pay a dividend. Apple will instead perform a share repurchase.

apaprocki 15y ago
Completely with you and I hope it is a repurchase. Given the tax situation I don't see how a dividend would really be an effective use of the cash.
xenophanes 15y ago
Amazon's PE is very misleading. Their revenues are much higher than their profits and can be monetized more in the future. They aren't trying to maximize profits, currently.
dkrich 15y ago
Well, looks like we were both right.
- beatle 15y ago
  looks like it :)

DavidSJ 15y ago

at the rate of inflation that is likely to occur over the next several years, holding that much cash is a huge mistake Market expectations for inflation are usually factored into interest rates already. While the market could be wrong, Apple probably shouldn't get into the business of speculating on inflation rates.

beatle 15y ago
>Market expectations for inflation are usually factored into interest rates already. Actually that is not true. Historically Interest rates on currency-based investments have not caught up with inflation and taxes. Majority of Apple's cash is invested in long-term securities though so their investment is protected from inflation.
- DavidSJ 15y ago
  Whether currency-based investments have historically provided positive real returns is an entirely separate matter from whether it is possible to time investment in currency-based investments based on expected future inflation rates.

philwelch 15y ago

> at the rate of inflation that is likely to occur over the next several years Do you have a reliable source on this? > Typically I would think the beginning of a dividend program to be a signal that the company has hit an innovation wall and doesn't know what to do with its cash. I think this doesn't really apply to Apple because cash is going to continue to flow freely into it a ridiculous rate for the foreseeable future. Apple's been building up this cash stockpile for so long that it's pretty clear they've long had more than they know what to do with. Having a cash position isn't really necessary either--at this point in time Apple could easily borrow at rates much lower than their expected return on investment anyway.

dkrich 15y ago
> Do you have a reliable source on this? Yes- it's called the Federal Budget. When the US continually runs a deficit and prints money to make up the difference, that cash goes into the economy without any real output in GDP. That causes currency devaluation, and in turn, inflation. Towards the end of 2008, $700 billion dollars were injected into the economy while the US was in the midst of running a multi-trillion dollar deficit. Taxes weren't raised, so that money came (an continues to come) from thin air. There is virtually no chance inflation does not steadily increase in the coming years. I can confidently say that because I see no reason to believe that there will either be a sudden burst in GDP to increase tax revenues, a reduction in spending, or an increase in tax rates sufficient to make up the difference. Remember, economic effects tend to lag. The mortgage crisis occurred after several years of irresponsible borrowing and lending.
- runako 15y ago
  I'd be curious to hear more about your inflation expectations. Specifically, why Krugman et. al. are incorrect in arguing that the economics of stimulus work differently in a depressed economy (or why you think the diagnosis of the US as a depressed economy is incorrect). Also, I'd be curious as to why you think this didn't happen in Japan, and what are the critical differences in the US that will cause inflation here. I'm curious because I hear the "inflation must come" argument often, but I haven't heard it squared against Krugman and Japan. I'm not an expert, so any guidance would help my understanding.