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Dialectical Materialist

Dialectical Materialist
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  • Apple's Cheaper Stock Buyback [View article]
    The issue is not buying the shares, it is retiring them. In essence Apple would have to transfer the shares back to US corporate office to retire them, resulting in a taxable event, so it wouldn't accomplish anything.
    Sep 6, 2015. 11:47 PM | Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    I appreciate your opinion, and of course that is all I was giving was an opinion.

    But it is interesting to note wrinkles like the fact that some funds can not consider a position in a stock until its dividend has increased over a certain number of years. The rules these funds use can be very selective. I suspect there are already fund managers that want to add AAPL but have to wait a couple more years as it builds its dividend increase history.

    The question is not whether the size of the dividend has any bearing on Apple's ability to grow (or course it does not, as you rightly point out). Rather the notion is that there will be some fund managers who think Apple is only awarding a large dividend to burn off its cash because it has no other ideas about how to use it. A big dividend is often a sign that management is expecting slower growth or sees few opportunities for its cash.

    Fund managers could very easily take an increase in the divi to 4% as a signal that Apple's transformation into a dividend value play was complete. That absolutely could impact institutional ownership, and not all of it for the better.

    I certainly was not trying to make an argument that the greater dividend would be some kind of drag on Apple's growth potential per se.

    You wrote, "If a share holder chooses not to accept this 4% because they feel that 'the company is no longer a growth play' ,then sell your stock."

    But that is exactly what I am talking about. Some funds might actually do that.
    Sep 6, 2015. 06:23 PM | Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    Gregg, that is certainly Icahn's argument. I am curious what you think of this possibility:

    Apple is pacing buybacks so that it can defend the shares against any kind of decline like it saw in 2012. You could make an argument that a rush to spend all of its allocation would leave it vulnerable to aggressive re-pricing events from powerful market forces (be they natural or manmade).
    Sep 6, 2015. 05:48 PM | 2 Likes Like |Link to Comment
  • Apple: Best Tasting Bear Ever? [View article]
    pk de cville,

    Just like the original iPad, the Apple Watch has a limited use case (i.e. you can always find something it can't be used for). And just like the original iPad a lot of people declared it DOA before it was even introduced.

    I think there will be plenty more parallels to the iPad as well. I know for me it is a similar story. When I started using it, I was intrigued. Gradually it has become indispensable to me. It is simply another gadget I can't live without that I never knew I needed. I expect Watch sales to ramp up pretty well as more and more people learn what it can do for them. And as the product gets better it will only be that much more indispensable.

    Despite so many folks calling the Watch a disappointment or outright failure, I am very sanguine about its future position in the Apple product line.
    Sep 6, 2015. 12:58 PM | Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    I enjoy your comments, Retired One, but could you consider adding paragraph breaks on these long ones? They can even be arbitrary. My eyes are not as young as they used to be and it can be hard to follow a long wall of text. Some folks may even skip your comment because it is too hard to read, and that means you are missing a chance to reach your audience.

    Now let me tell you why you are totally wrong ;)

    There is a fatal flaw in the assumption that big dividends (like 4%) would result in share price increases. This is that many people would take this as a signal that Apple's growth days are behind it. Many people would want to add AAPL for the dividend, but others would dump it as they would see the move as a sign that AAPL is no longer a growth play.

    Any share price argument can be made for almost any stock by picking a starting and ending point that supports your case. The fact that AAPL has been down recently does not disprove the power of buy backs.

    The good news for all AAPL shareholders is that Apple is doing it all. It is buying back shares, it is paying a dividend, and it is organically growing earnings to boot. It is literally firing on all cylinders. If the share price has ups and downs along the way, well that's just because a bunch of blind men on Wall Street are all describing a different elephant. Stock prices fluctuate, that's what they do. But a solid company results in a solid share price over time.

    Warren Buffett himself said if you can buy a dollar for 80 cents, that's what you do. So unless you think that AAPL is not undervalued here, you should not be opposed to buy backs.

    But here is the real deal. Apple is going to continue to execute buy backs for as long as it thinks the share price is grossly undervalued. These are smart cookies. They won't bother buying back the stock when AAPL gets close to what they think it is worth. And I trust these folks who have all the data on what is in the pipeline and how their sales are going to have a good idea of where they are headed.

    So when AAPL does end its buyback, the dividend -- which as you point out will be steadily crawling upward in the meantime -- will get a bigger boost. When the last buy back is done THEN the dividend cannon will be trotted out for a test fire.

    This is really the best of all possible worlds for AAPL investors. They have a passing game (increasing earnings) and a running game (increasing dividends) and a good defense to boot (share buy backs). Folks calling for huge dividend increases now are focused on pounding the ball inside and running out the clock. But Apple still has plenty of time to run up the score.

    So be patient. Dividend increases are coming. Large dividend increases will be coming eventually. For now, they are spending billions buying one of the best companies in the market: AAPL. A big picture overview will eventually show just how effective this three pronged strategy will be.
    Sep 6, 2015. 12:43 PM | 6 Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    Splits are neither dilutive nor accretive: they are neutral. They have no relationship to stock buy backs. The absolute number of shares is no more relevant than the share price. What matters is how big a slice of the company each share represents. Splitting one share into seven does not affect the shareholder's portion of the company. Retiring shares (or issuing new ones) does. You seem to be confused about the concepts involved, and I have attempted to clarify them in the best way I know how.
    Sep 5, 2015. 04:38 PM | 9 Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    Stock splits are not dilutive. I'm kind of hoping you were joking when you said that.
    Sep 5, 2015. 04:09 PM | 6 Likes Like |Link to Comment
  • China: The Elephant Sitting On Apple's Pie [View article]
    I agree entirely, Ernie. But as you know long term shareholders have learned the song well. In 2011 people were predicting Apple was near the end of its growth and the PE was assigned accordingly. I remember reading a lot of comments that Apple was pretty much cooked when it had achieved a 500 billion market cap. You simply can't grow from there, the argument went. This is all well rehearsed silliness. The patient investor is rewarded.
    Sep 5, 2015. 03:28 PM | 1 Like Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    Share prices fluctuate from day to day and week to week. But there is no doubt that at the end of this buy back authorization, each share will represent a bigger slice of the company pie.

    If you don't believe in the power of buy backs, consider the opposite case. If reducing the share count is worthless, than diluting the share count should be harmless. Yet we know companies who consistently print more shares end up destroying shareholder value. That is why an increasing float is a dangerous thing for a buy and hold investor. Ideally the share count is actually reduced, and that is exactly what buy backs accomplish.

    You can't watch the daily share price and look for the impact of buy backs. But over time it is clear.
    Sep 5, 2015. 03:23 PM | 11 Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    In the last qtr, Apple made $10.7b vs $7.7b in the year ago quarter. This is earnings growth of 39%. If the share count remained level, EPS growth would be the same 39%.

    Factoring in buy backs, EPS grew 45%.

    I find this kind of earnings growth stunning. Bear in mind this was the quarter that supposedly disappointed.

    Companies with this kind of earnings growth usually have PE's in the 30s at least. Each qtr everyone says that AAPL can't keep it up. And yet...
    Sep 5, 2015. 03:05 PM | 14 Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    Mikey, AAPL trades on the NASDAQ. They just happen to be one of the Dow Jones Industrial Average stocks as well. The inclusion in the index did not change the exchange they trade on.
    Sep 5, 2015. 02:13 PM | 11 Likes Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    The interest rate expires at the end of the term and it is tax deductible. The dividend is in perpetuity. So, yes. It is worth it.

    It is up to the board of directors how to use the "shareholders" money. If you don't like it, team with other share holders and replace the board.
    Sep 5, 2015. 01:36 PM | 10 Likes Like |Link to Comment
  • China: The Elephant Sitting On Apple's Pie [View article]
    "it looks cheap from the existing view points but we need to be careful because the share price of AAPL has been driven mostly by the excessive optimism baked in its growth."

    How do you argue that excessive growth optimism is baked into a stock with a forward PE so far below the S&P? At a forward PE of around 11, the stock is not priced for optimistic levels of growth. It is priced for just about no growth at all.
    Sep 5, 2015. 12:46 PM | 1 Like Like |Link to Comment
  • Apple's Cheaper Stock Buyback [View article]
    No, they don't collect the dividend on retired shares.

    But I think what Bahamas1 meant was that they don't pay the dividend on retired shares. Hence it is cheaper for them to borrow at low interest and retire the share than pay the dividend forever.
    Sep 5, 2015. 12:41 PM | 13 Likes Like |Link to Comment
  • Apple Bonds: Heavy Trading Volume Is A Concern But Default Risk Remains Low [View article]
    With those odds, you should buy two tickets. Just to be safe...
    Sep 4, 2015. 06:44 PM | Likes Like |Link to Comment