Apple: When To Sell - Part 2

May. 6.14 | About: Apple Inc. (AAPL)


Dividends cannot be equated with shareholder value.

Poorly executed repurchases destroy value.

There may come a time to sell this stock, that time is not now.

On Dividends

Regarded Solutions refuted some of the points in my prior article about when to sell shares in (NASDAQ:AAPL), but I think he missed my point.

I believe that it is important to note that with the amount of cash that Apple has, and the payout ratio as low as 29%, it is probably quite inaccurate to say that continued dividends will destroy value.

How could any investor say that dividends destroy value when the growth engine is also hard at work as well?

I couldn't disagree more. Dividends only have a place in the cash management arsenal when there is no option to invest the cash for a higher return than the cost of capital. For this reason, Warren Buffett has never allowed Berkshire Hathaway (NYSE:BRK.A) to pay a dividend.

Currently, Apple has a place to allocate its money with a higher return than the cost of capital. This investment is in the repurchase of its own undervalued shares.

On Selling Shares

Regarded Solutions said:

The author seems to mean that shareholders should NOT sell shares until the company stops buying shares back. Ok, that is his opinion and that is fine, but as far as I am concerned, the company can stop buying shares back in 2014, continue to increase dividends at 8% annually and the company will still be giving tremendous shareholder value.

While I agree that Apple may eventually become a dividend growth story instead of a value play, and some investors wouldn't mind that, if shares are fairly valued, the investor loses his margin of safety, and without a margin of safety, I will place my money somewhere else.

What The End Of Repurchases Means

Management at Apple has their finger on the pulse of the company. Management has already created billions of dollars of value with the prior repurchase programs, and continues to do so. The halt of repurchases would convey management's opinion that shares are fairly valued or overvalued. If at that point in time I am in agreement with management, I will close my position. If not, I will hang on tight to my shares. This time will come not in weeks or in months, but in years. So, like Regarded Solutions, I am long Apple for the long term. Unlike Regarded Solutions, dividends don't impress me, I'm all about value.

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.