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Why an Apple Dividend Would Be Bad for Investors

The following video is part of today's MarketFoolery podcast, in which host Chris Hill and advisors Andy Cross, Jeff Fischer, and James Early analyze the latest business news. Changes are afoot at Apple, where CEO Tim Cook is reportedly considering issuing a dividend. The guys debate the benefits and downsides, the tech companies that have successfully pulled off a dividend, and the unintended signal an Apple dividend would send investors.

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Chris Hill owns shares of Microsoft. The Motley Fool owns shares of Intel, Microsoft, Oracle, and Apple and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Intel, as well as creating bull call spread positions in Microsoft, Apple, and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On November 03, 2011, at 12:59 AM, TheGreatFoolish1 wrote:

    That commentary seems ridiculous to me. People's perception of the company may change, but that doesn't mean it's a bad idea. It's a bad idea to have 100 billion dollars sitting around doing absolutely nothing, which is what they will have in the middle of next year.

    It's absurd to say that because they start a dividend the company can't grow anymore. At the very least start buying back shares. Apple itself is a great investment, if they believe in the company so much go ahead and invest in that. If they do nothing for 5 years, they'd have over 200 billion in cash even if they don't grow at all.

    They could pay out a 4% yield and still grow their cash to over 100 billion next year.

  • Report this Comment On November 03, 2011, at 1:04 PM, CMFSoloFool wrote:

    Myth #1: Apple doesn't know what to do with their $90 Billion.

    Myth #2: Dividend didn't work for Microsoft, so it won't work for Apple.

    Myth #3: Dividend (which benefits the employees) kills innovation.

    I called the above out as I heard them, with all due respect to the panel members. These points are interesting, but I don't think there is actual evidence to support any of these claims.

    What I think might help shed some light here, would to be find out how much of Apple's cash hoard is abroad versus within the USA. The tax burden on offshore holding could be a big factor, and may have something to do with Apple's war chest. If the Congress approves a new tax holiday, Apple may be able to transfer a big portion of the money back to the US, and may then have different options.

    Also, the cash could have significant strategic value, as it has been proven when the world discovered that Apple was funding expansion and buildouts of some of their suppliers in return for price guarantees and exclusive protection on their designs. It certainly puts them in a position of power in negotiations, and if the need arose they certainly could throw some of that cash around to diversify their supply chain if/when there is a threat.

    Consider also the growth Apple has produced. Are stockholders really disappointed with the performance? Is a dividend going to fix anything? Even a share-buyback would be meaningless when the company continues to produce such extraordinary growth numbers.

    Finally, given the political and financial climate we are in today, we see cash is ballooning on most corporate balance sheets all over the S&P 500. Why? Could it be that no one wants to be caught flat again in another liquidity crunch? Could it have anything to do with the fact that the real debt/liquidity problem still hasn't been solved, and the government has simply slackened the rules why they struggle with how they can refloat the banks and the housing industry?

    As long as Apple stays on their current growth trajectory, I don't see a need to change anything. As much as I would love a dividend, I'll take status quo and continue to be quite happy with my Apple stock.

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