Apple announces what they are doing with the cash pile

It was basically all about the Apple announcement (actually from Cupertino, California) for the better part of the morning in the US. We listened into the conference call, but our bandwidth was poor and the call was not always reliable. But it was awesome nevertheless to hear the analysts asking Tim Cook (CEO) and Peter Oppenheimer (CFO) questions, and to hear them answered. We thought of submitting a typical analyst question, but it was both too late and we were talking about flow channels and blue sky in the kind of way that analysts think makes them sound so smart. So we just listened to the end, not for long and then we watched the share price. The share price in the after (pre) market had initially spiked on the news of the conference call, but then fell after the company announced that they expect to "spend" 45 billion Dollars in three years.

I think that spend is the wrong word here. Apple might be buying back shares to the tune of 10 billion Dollars, using shareholders cash, neutralizing employee equity grants and stock purchase programs for the same said employees, but the other 35 billion Dollars is expected to be used for dividends. Apple has announced that they will start with a not so modest 2.65 Dollars per quarter dividend. Sure, it sounds modest when you annualize that (10.60), and then work out the yield at the closing share price (601.1 Dollars, a record high), you get to a yield of 1.76 percent. Hardly a kings ransom, but to put it into context, when Cisco announced that they were paying a modest quarterly dividend of 6 cents per quarter, the annual yield was around 1.3 percent at the time.

So does this mean that the company is ex growth? Nope, what it does mean is that there was building pressure from stock holders for Apple to do something with their cash, and in this case it is their domestic cash of course. Domestic being US cash. Because their foreign cash cannot be brought back home to the US, without being taxed again. And Apple will continue to reinvest in their business rolling out retail stores, spending wild sums on R&D, building their own infrastructure and continuing to spend the necessary capex on their supply chain, Tim Cook explained. This was just another part of their cash redeployment, this time to the rightful owners, the stock holders. I know that some people think that the board are better placed to make decisions re the companies cash, but it has been shown that stock holders make better decisions. Why? Because naturally it is theirs.

The stock price initially took a tumble as soon as they became unsuspended in pre market trade, around 30 minutes before the opening bell, but in normal trade on the spot market the stock opened up and proceeded to close at the record high of 601 dollars and ten cents. Leaving you with a mind boggling 4718 percent return over exactly ten years. Err.... what is that measured in gold.

And to add to the excitement, the company announced that they had the very best "new iPad" launch ever, selling over three million on the first weekend alone, take that at one million per day, because the launch was Friday morning. The run rate last quarter on a daily basis was roughly 167 thousand units a day, so iPad sales were six times hotter than usual over the weekend. And to think that the new tablet goes on sale in an additional 24 countries on Friday. Don't ask when it is coming here, I do not know. Ask the people at the Apple stores around the land, and you get the same answer, they do not know either. The launch everywhere is very secretive, it is the allure of the product that keeps them comfortably ahead of the pack.

So do you still buy the stock? Well, for what it is worth, the few analyst reports that I have seen suggest somewhere in the region of 43 Dollars worth of earnings in 2012 and nearly 51 Dollars worth of earnings in 2013. At 600 Dollars a share that suggests a forward multiple of less than 14 times and a historic multiple of 17 times earnings. Cheap? For a company that is growing so fast, definitely cheap. The two major risks for me are growing legal risk and regulatory concerns and the most important one to watch of course is increased competition. For the moment it is a Sergey Bubka type scenario. Who still holds both the indoor and outdoor polevault records, set in 1993 and 1994 respectively. Yes, vaulting to new highs, careful of the Olympics though. He won gold in 1988 in Seoul, but never again through to his retirement in 2001. We continue to buy the stock, but take note of the risks.