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I am looking for stocks with solid dividends that are likely to increase and who are buying back stock or are likely to do so for the foreseeable future. That's AAPL if it's anybody.
I would disagree with this statement. Apple is a great company, but it is not a poster child for guaranteed or "likely" return of cash it currently generates.
http://www.businessinsider.com/apple-responds-to-carl-icahn-2013-12Read the response from the board in the article. What does it tell you when the board says that
they must keep a big portion of your money? Any money the that company "must" keep for current and future investment is money that it cannot give back to you in the form of buyback or dividend.
Here is an interesting question -- how much money did Apple spend to design the first iphone?
http://www.businessinsider.com/apple-spent-over-150-million-to-create-the-original-iphone-2013-10http://www.nytimes.com/2013/10/06/magazine/and-then-steve-said-let-there-be-an-iphone.html?pagewanted=all&_r=2&150 million?
How much "capital" is needed to design the next iphone type product?
These are the questions that you as an owner should be asking. The buybacks and dividends are a symptom, not a cause. You care about the symptoms, which is great -- the symptoms make us wealthy -- but you need to question their ability to continue.
Apple board said that they payed out about 44 billion in 2013, 17 billion of it was financed by debt, so long term investors really got back only 27. You can buy Apple now for 500 billion. That is not a great payout -- you can get much more now from say IBM.
Is Icahn right in asking for more?
The way to answer all of this, and to circle back to my original premise on top, is to identify two types of companies:
1. There are companies that can generate the same amount of cash with less investment.
2. There are companies that can generate more cash with more investment.
The two are not the same thing.
A more correct statement on your part would be this:
Apple did not payout well in the past, in fact it payed out nothing really. This year it did give shareholders money, and although on a absolute basis the number is large, on a relative basis it is not. It has in the past generated revenue and profits at phenomenal rates. And a not so great payout from phenomenal growth is really good. I believe that Apple will take my money and invest it in itself. This will cause it to generate more cash, and although the payout percent will always be small, the large revenue and profit growth will continue to make the absolute payout that I get in the end quite attractive, which will make the investment good.
What I think Icahn is saying: Um it cost you guys 150 million to create the iphone. Hire more creative technologists, and give me back my share of the 150 billion you are hording.
Apples board thinks that Apple is company type 2, Icahn thinks that it is or should be company type 1.
Personally I like putting my money into type 1 companies. One last analogy example that might relate more to people on this forum.
Type 1 companies are Mr. Money Mustache. They have the ability to generate amazing results. But there is a limit to the amount of "pure money/ capital" that they can invest in themselves -- that is why they return a good deal of it to shareholders.
Type 2 companies are companies that can take large amounts of money and at times, but not always, generate amazing results. Say, a person who took out 200k to go to an elite school, and afterwards got a very high paying job. She then spends even more to open a business, etc, etc.
If you could buy the "after expense and capital investment earnings" of either one -- who would you choose? Who do you think would produce more stable earnings for the price paid?