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Summary

  • Continued dividends destroy value.
  • Continued repurchases imply value.
  • Don't sell until the repurchases stop.

Summary

I have made the case for Apple (AAPL) to hold off on dividends as long as shares have been undervalued, again and again and again. Each article was greeted with dozens of critical comments, some of them disparaging, as to why I was wrong.

Now, with our 20/20 hindsight, let's assess what would have become of that cash, had the money been spend on repurchases instead of dividends.

Pay Date+1DividendShare PriceValue Potentially Created
2/15/13$2,493$460$705
5/17/13$2,491$431$919
8/16/13$2,811$497$526
11/15/13$2,769$516$397
2/14/142,700$544$228
Total$2,775

Essential, had Apple repurchased shares instead of spending the money on dividends, it would be able to resell those shares on the market today for a cumulative $2.8 billion profit. So to all the naysayers, I ask you again, dividends or repurchases, given that you are a value investor buying undervalued shares?

Continued Repurchases Imply Value

On the most recent conference call, Tim Cook implied that shares are still deeply undervalued. In fact, he implied that he is only increasing the dividend to satisfy investors who need the income.

We think very deliberately about how much and in which way to return cash to our shareholders. We decided to continue to allocate the vast majority of the incremental capital return to share repurchases because we believe our current stock price does not reflect the full value of the company. The size of the share back increases the signal of the Board and the management team's strong confidence in the future of Apple.

We also understand the importance of the dividend to many of our investors and we are increasing it for the second time in less than two years.

When To Sell

Finally, we can safely assume that the management at Apple knows what lies behind the thick corporate veil better than anyone else. What we do know is that Cook promised new products, and the leaks of parts and rumors from the supply chain has confirmed it. The day Apple stops buying back its own shares is the day you should sell. Until then, you can rest assured that the shares are undervalued.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: When To Sell Your Apple Shares