Photo: File image
US$750 billion is coming to Apple shareholders
The question asked by the writer is: How should Apple return US$750 billion?
Among the proposals on how would Apple do that are buybacks vs dividends. Buyback enthusiast’s advocates for the funneling of the vast majority of the cash into buybacks.
The writer propsed a balanced approach in his model (large buyback and substantial dividend increases) which he said meets every shareholder’s needs better than a low dividend, spruced up buyback approach.
Balance is Best
“Abias toward greater buybacks is usually not more beneficial for generating long term shareholder value. Paying dividends allows shareholders to decide on the use of their cash.
“Those who want long term appreciation can reinvest and, in most situations, gain a slightly greater return than if the company repurchased shares.
Newsletter
Get updates straight to your inbox
“This is true even after paying taxes on the dividends. Other arguments for over-emphasizing buybacks over dividends generally fail against the dividend reinvestment option. There are also legal and practical limits to consider with large share repurchases,” wrote Morton.