Apple Inc. (AAPL): Greedy Capitalist or American Blessing?

by Crista Huff

 

Negative people really irk me. As soon as Apple announced a new $100 billion share repurchase authorization last week, a vocal contingent of citizens opined at Apple’s selfishness, twisting the good news into an attack on free-market capitalism. You probably meet these people occasionally, so I’m going to give you a little bit of ammunition in order to help them reason things through.

The new federal income tax legislation provided a way for U.S. companies to bring overseas cash back to the U.S., by allowing them to pay a lower income tax rate on the cash than they would have previously been subjected to. In so doing, Apple found itself with an astonishing amount of money with which to deploy. Keep in mind that Apple was not required to do anything at all with that money. They could have just parked it in U.S. Treasuries or built factories around the world. Instead, they’re giving it back to American citizens.

“What? How could that be? Capitalists are horrible people! You must be wrong, Crista. I’m sure Apple is planning to buy yachts for rich people with that money!”

Let’s examine how Apple is giving the money away, and who’s receiving it, shall we? We can start by answering the question, “Who owns Apple stock?”

According to a Gallup poll spanning eight years between 2009 and 2017, 54% of adults polled responded that they own stock investments, either individually, or jointly with a spouse. There are approximately 245 million adults in the U.S. If 54% of them own stock investments, that means 132 million adult Americans own stock investments.

• There are 167 exchange-traded funds (ETFs) that count AAPL among their top 15 stock holdings. (And of course, there are many additional ETFs that also own AAPL.)
• AAPL makes up 4.0% of the S&P 500 index, which means your S&P index mutual funds own AAPL.
• AAPL is also a weighty component of the Dow Jones Industrial Average and the Russell 3000 Index, and each of those indices are duplicated by many mutual funds.
• AAPL is a component of many hundreds of growth stock mutual funds, growth & income mutual funds, balanced mutual funds and large-cap mutual funds. No matter what your investment objective, AAPL probably holds a place in your investment portfolio.

If you are an investor who owns mutual funds or ETFs, either in taxable accounts, IRA accounts, children’s custodial accounts, variable annuities, pension funds, 401(k) plans or 403(b) plans, you probably own AAPL as part of those funds’ portfolios. In addition, many Americans own AAPL within their stock portfolios. So I think it’s fair to estimate that of the 132 million adult Americans who own stock investments, at least 100 million investors own AAPL.

Great! Everybody owns AAPL! Now let’s examine how much money Apple is giving away, and how investors receive that money.

Apple just raised its quarterly dividend payout from $0.63 to $0.73, or an increase of ten cents per share. The annual increase is forty cents per share. There are 4.915 billion shares of Apple common stock outstanding. If we multiply the number of shares times the dividend increase, that means shareholders are receiving an extra $1.966 billion in annual dividend income from Apple, beginning right now and continuing until the day that Apple can no longer afford to pay that dividend. Apple is therefore contributing to the personal income of 100 million Americans via its dividend payout.

$1.966 billion in dividend income is an exciting number, for sure. But it pales in comparison to the $100 billion that Apple is also giving away through its latest share repurchase authorization. Here’s how that works.

Apple will periodically buy its common stock on the open market until it spends the entire $100 billion. Share repurchase authorizations usually last between one and three years, and after companies spend the allotted money, they very often authorize new dollar amounts to be repurchased.

As Apple buys its stock, the purchasing power serves to shore up the share price during down or stagnant markets, and to push the share price higher during bull markets. As a shareholder, to a very large extent, you don’t have to worry that the AAPL share price will ever plummet. That’s because Apple has the discretion to decide when to repurchase shares. They will naturally repurchase more shares during down markets while the share price is lower, and that buying activity will provide price support.

As an AAPL shareholder, you benefit because you own a stock that will not fall very much, and if it falls, it will probably recover quite soon. In addition, there’s a guarantee of $100 billion of purchasing power that will be directed specifically to AAPL shares, which will drive its price up, thereby increasing your personal net worth and the net worth of the 100 million other investors who also own AAPL.

Does this dividend and share repurchase activity sound like a selfish action on the part of a greedy company that’s trying to curry favor among yacht-owners? Or does this activity sound like a blessing to you and your neighbors’ net worths?

I bought more shares of Apple last week. And I mentally moved it from “trading stock” status to “long-term hold” status. I hope you’re also benefiting from Apple’s successes and generosity.

I really can’t imagine living with the degree of personal pettiness and dissatisfaction with life that leads a person to waste time complaining that somebody else has money that they don’t personally have. If you need ideas on how to turn your sour attitude into something productive, perhaps do an internet search with the words “Apple, charity, and Tim Cook”. I’m sure you’ll find a couple of ideas that can help you to also be a blessing to others.

 

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Crista Huff is the Chief Analyst of Cabot Undervalued Stocks Advisor, a stock market newsletter that uses a proprietary combination of fundamental and technical analysis to outperform the S&P 500 index. Please send questions and comments to Crista@CabotWealth.com or research@goodfellowllc.com.

Find me on LinkedIn.

 

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