Apple Declares Golden Apple Dividend But it’s Not a Dividend Stock $AAPL

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

The long-awaited dividend announcement came down from the Apple Tree. Apple (Nasdaq:AAPL) will skim a little bit of cash and line the pockets of investors. The dividend yield at the currently stratospheric price point is just under 2%. If you are a true dividend oriented investor this will not turn your head. Yield hounds who must surely know rising interest rates and probably inflation are just around the corner will not be truly impressed with a 2% yield.

Coupled with the cash dividend will be a share buy back to fund employee share purchase plans. A nice touch of financial engineering. Can you blame them everyone else is doing it? This allows them the flexibility of manufacturing EPS.

The market is applauding for now. But this is not the Golden Apple as everyone contemplates. True dividend paying stocks return capital to their shareholders in a defined and systemic manner.   Dividend levels while not contractual obligations become matters of trust. When dividends are reduced or cancelled share values erode deeply reflecting the drastically eroded business model. Dividend payout ratios are usually established in advance. Apple has done of these things. The dividend is being justified as something that will not erode the pile of cash that Apple has accumulated. No one is looking at dividend coverage ratio’s and assessing business risk. So therefore Apple is still not a dividend stock.

You would not set your stock selection screens for a 2% dividend  yield and then hit the buy button.

Microsoft (Nasdaq:MSFT) with 50% of Apple’s market cap has a dividend yield of approximately 2.5%. Microsoft’s cash balance is around $52 Billion. Yet Microsoft is starting to be viewed as a senior with an established cash flow base from its Office Product and enterprises services. There is real pressure on Microsoft to act more like a utility and pay up. Microsoft has made a few acquisitions and is probably glad the Yahoo thing (Nasdaq:YHOO) didn’t real work.

Apple has had to eat its own babies to develop new compelling products. Microsoft has eaten the neighbours children several times over and can point to a more entrenched product line. Apple is one marketing failure away from disturbing their slavish clientale. Microsoft can launch Vista and shrug off the problem.

The real comparison is IBM (NYSE:IBM) Big Blue currently has a dividend of under 1.5%. The market cap is just behind Microsoft and the cash balances are nowhere near what Apple or Microsoft have to offer. In short they are a dividend stock. The CFO   needs to watch earnings and cash flow to ensure he can cover the dividend. Apple simply is not in that category.

Which is why Apple has Golden Apples but not Golden Dividends.

George Gutowski writes from a caveat emptor perspective.

#Buffett angst Bets on himself Secret investing signal $BRK.A $BRK.B #buffett #sharebuyback #valueinvesting

Warren Buffett speaking to a group of students...

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Well the Oracle from Omaha has decided to buy back shares in himself. Berkshire Hathaway that is (NYSE:BRK.A) Quite the swan song move in the twilight of a brilliant investing career. Buffett has signalled that his trigger finger is itchy with over $40 Billion in unused cash. Despite a bizarre desire to pay more taxes the ultimate value investor does not see adequate investment bargains out there. I’m sure he looked. He even cold called Bank of America (BAC) but they could only take up $5 billion.

The share buy back strategy begets a few questions. He plans on giving most of the shares to charity but in the mean time he starts the buy back thing. So all those deserving causes will get a little bit less. I assume that he will not take any cash himself letting the market enjoy the cash. But Warren if you can’t figure it out us little folks don’t have a chance.

Also is he secretly saying his replacement players will not be able to identify value plays and the cash has to come off the table. A shrink might say he is protecting his reputation. The successors will not have the cash to do the deals. Hmm.

Is this a secret message to value investors. There is nothing out there of any consequence. Except for Berkshire. Hmm reverse psychology with the investor relations program which he claims he does not really have. Quite the poker move in some ways. If you know Berkshire is looking at you know you have some competition so maybe the big buck buyout is not coming that quickly.

Disclosure : George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.

Darden’s $DRI bag of tricks and financial engineering #QSR #sharebuyback

The company's former logo, used until 2009

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Darden Restaurants (NYSE:DRI) announces they are upping the share repurchase plan by another $100 million. Financial engineering runs supreme. The stock is trading at the low range of it’s 52 week averages. It yields just under 4%. Long term debt while down from its peak is still dangerously high. So just buy more stock and watch the EPS go up. 

What about menus and margins? What about expanding and opening news stores? What about bringing along new concepts? What about running the operations side of the business and creating shareholder wealth through clever management?

You know how a restaurant is popular? When the line up is long, that’s how. So until management starts talking about the need for more parking or the need to expand the bar area while customers are waiting to be seated [booze and appetizers have a high price margin] you know its all hocus pocus.

Disclosure: George Gutowski writes from a caveat emptor perspective. I like eating at Red Lobster and Olive Garden. I do not own positions in any stocks mentioned in this post. I do not have plans to initiate new positions within the next 72 hours.

Walgreen’s Trojan Horse

Walgreens logo

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Walgreen (WAG) told shareholders they returned $2 Billion by way of share buy backs. The corporate narrative would have been much stronger if Walgreens had paid down its long-term debt which currently sits at $2.3 billion. Imagine being debt free. The market cap is just under $30 Billion. A financial engineering project of $2 Billion does nothing for the long-term story. 

President and CEO Greg Wasson went on record by claiming both a dividend increase and a huge share repurchase as way to reward investors. Greg a dividend increase is considered permanent reward. Share buy backs that drive debt loads up are short-term tricks. 

Disclosure: No position in stocks mentioned in this post.