On Tuesday, Apple (NASDAQ:AAPL) extended its hand to shareholders who have held on for the ride. The company increased the size of its share repurchase program from $10 billion to $60 billion, and hiked its dividend by 15 percent. The board declared a quarterly dividend of $3.05, increasing the company’s annual payout to an insane $11.46 billion, nearly 30 percent of 2012 net income.
Apple’s new dividend yield is 3 percent. This compares favorably to the average dividend yield among S&P 500 companies, which is 2.3 percent. Apple stock is already cheap enough (at a trailing-twelve month price-to-earnings ratio of 9.28) to have attracted seasoned value investors like Brian Rogers, who manages T. Rowe Price Equity. Perhaps picking up on the same wavelengths, Apple’s board also decided to buy stocks it thought were undervalued. At $400 per share, this would reduce Apple’s current shares outstanding by about 13 percent.
All told, Apple looks like a pretty nice place to let your money to go to work. The company’s bid to return capital seems to have satisfied investors, even if it did not thrill them. Apple stock has trekked about 4.7 percent higher over the past five days. At just over five times free cash flow, adjusted for cash per share, the company’s stock looks like it could find a bottom any moment, if it hasn’t already. The stock has pretty much landed on the shoulders of value investors…
These are all pretty straight forward consequences of such a huge capital return program. It’s hard to return $100 billion to shareholders and somehow reduce your attractiveness as an investment (although there is definitely disagreement over the effectiveness of share repurchases). But as much as anything else, the program means that people will be thinking about the stock different. Specifically, the way investors value the stock could change.
As it stands, Apple seems to be trapped somewhere in the liminal zone between between being hardware company and a software and services company. If investors believe Apple is just one or the other, they are not seeing the whole picture. iTunes/Software/Services revenues increased 30 percent year over year in the second quarter, faster than any other product segment except iPads.
As CEO Tim Cook pointed out at an investor conference in February, Apple does not look at the sale of a product as our last part of the relationship with the customer. It’s the first.”
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