Handicapping an Apple Special Dividend

If you've been keeping up with the markets, there's no doubt that you've heard a lot about this fiscal cliff mumbo-jumbo in the past few weeks. While the whole issue could be overhyped, it's true that if we "fall off" the cliff, there will be some notable (and unpleasant) changes for both average individuals and major corporations alike. And that's important to keep tabs on.

Accordingly, many companies have been bracing themselves for the worst, hedging themselves for the worst-case scenario. Apple (NASDAQ: AAPL  ) isn't one of those companies, and its shares have taken a beating for it, as investors struggle to understand the tech giant's fuzzy rationale

Big businesses proactively address the possible cliff
While companies can spend big bucks lobbying Congress and cozying up to regulators, fiscal cliff talks are a purely political phenomenon; industry has little say on whether politicians will find some common ground. However, companies can control how they  prepare for the worst. Specifically, for companies paying a dividend, the elimination of Bush-era tax cuts would see taxes on dividends nearly triple -- from 15% to 40%. For this reason, many major companies have chosen to pay "special dividends" in December, in lieu of those that would be paid out next year. More than three times as many companies declared special dividends this November than last November. 

Included in the litany of companies issuing special dividends this month are businesses like Questcor Pharmaceuticals (NASDAQ: QCOR  ) , Las Vegas Sands (NYSE: LVS  ) , and Cisco Systems (NASDAQ: CSCO  ) . The first quarter 2013 portion of Questcor's hefty 3.1% annual dividend will be paid to shareholders around Dec. 21. Not a bad holiday gift! And Las Vegas Sands shareholders are getting even more generous presents, receiving 12 times the usual amount of cash. When the casino announced it was dishing out $2.75 per share on top of the normal $0.25 quarterly dividend, shares quite understandably rallied, gaining 6% by the end of the day. Costco shares enjoyed a similar euphoric day of gains after announcing a generous 7.25% special dividend.

So, what gives? Why would the world's largest and most successful company not follow suit and provide its investors with a safety net?

The mindset behind Apple's confusing indifference
Apple's dividend yield, at nearly 2%, is nothing to balk at. In fact, it's somewhat of a luxury for most Apple investors; a dividend was only announced earlier this year in March, months after visionary CEO Steve Jobs had passed away. You'd think that, of all companies, Apple would be smart about capital allocation, hop on the special dividend train, and do what's right for investors. Perhaps it is, although the market certainly hasn't shared that opinion.

Steve Jobs grew Apple from a struggling has-been to the biggest corporate success in the world with bold and revolutionary product lines that had never been seen before. Apple has been one of the best growth stories of the past decade and, as a growth-oriented business, Jobs wanted to plow money back into the business, not dish it out to shareholders. The trouble was that Apple got so good at growing, it piled up mountains of cash, and investors began to question the utility of that cartoonishly massive horde of dough.

Although the executive mentality at Apple has changed slightly since Jobs' death, it still feels like the company is hesitant to emphasize its dividend too aggressively. The only logical reason -- which may prove wise, or it may not -- that Apple wouldn't dole out a special dividend, would be if the company really didn't believe the fiscal cliff would ever come to pass. Essentially deferring a payment to its shareholders for a few months will allow Apple to use that money for internal projects in the meantime. Or so it goes.

Bottom line
The trouble from an investor's standpoint is the sheer amount of cash that Apple still has on hand. With over $120 billion in the bank, is it really necessary to skimp shareholders on a short-term bet that our government will do what's best for the people? The markets certainly haven't thought so and, after hitting $700 highs in September, the company's shares currently trade in official "bear market territory," having fallen more than 20% from those heights. 

That's not to say that the lack of a special dividend is the only reason that shares have been struggling. Investors are worried about contracting margins, increasing competition, and the fiasco that has become Apple Maps. But, surely, giving a little money back to irked shareholders would help to remove some tension.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy, and reasons to sell, Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On December 07, 2012, at 8:54 AM, pondee619 wrote:

    "With over $120 billion in the bank" From where is this figure coming?

    From the fools CAPS page

    Cash and Equivalents Sep 2012: $10,746.00

    "All numbers in millions" Isn't 10 thousand miillion 10 Billion?

    Total Current Assets $57,653.00 Isn't this $57.6 Billion in current assets?

    From Yahoo Finance on Apple:

    Balance Sheet

    Total Cash (mrq): 29.13B

    From my broker:

    Sep 2012 Cash and Short Term Inv 29,129. This compares with Yahoos $29.13B.

    Why aren't the financial pages, including the Fools, in agreement with the $120B figure? Why isn't the $120B figure reported?

    thank you

  • Report this Comment On December 07, 2012, at 10:33 AM, JF125780 wrote:

    Can anyone explain why if you own 500 shares of LVS and you short them at strike price of $50.00 on Dec 22nd option date.

    Why does e-option change the strike price to $47.25 after a special dividend is declared?

    Danny

  • Report this Comment On December 07, 2012, at 11:54 AM, cp757 wrote:

    Danny

    LVS options subtract the 2.75 dividend when issued.

    pondee619

    Most of Apple's overall cash is in offshore accounts, and Apple cannot repatriate that money to the States unless it wants to pay a huge 35 percent corporate tax on it.

    This has been a policy that should have been changed 10 years ago when we went into a world economy.

    You cant pay taxes in another country and then bring the money to the US and be taxed again.

  • Report this Comment On December 07, 2012, at 11:59 AM, cp757 wrote:

    Apple's CFO Peter Oppenheimer slammed U.S. tax policy on overseas profits as part of a highly anticipated announcement Monday detailing Apple's plans to spend nearly half of the $100 billion in cash. He added that the company doesn’t have plans to repatriate any of its money parked overseas.

  • Report this Comment On December 07, 2012, at 1:24 PM, TMFDivine wrote:

    pondee619

    Thanks for bringing that up. I could have phrased it better; Apple has over $120B in cash and marketable securities, which can be converted to cash, which is why they’re included in that figure. It’s not the strict sense of cash, but that’s often how people talk about it. The exact breakdown can be seen on the balance sheet in Apple's 10-K.

    Here's the link, it's pg. 44

    http://files.shareholder.com/downloads/AAPL/2207072717x0x610...

  • Report this Comment On December 07, 2012, at 4:06 PM, pondee619 wrote:

    (In millions, except number of shares which are reflected in thousands)

    September 29, 2012

    ASSETS:

    Current assets:

    Cash and cash equivalents . . . . . . . . . . . . . . . . . ....... $ 10,746

    Short-term marketable securities . . . . . .. 18,383

    Accounts receivable, less allowances of $98 and $53, respectively . ................................. 10,930

    Inventories . . . . . . . . . . . . . . . . . . . . . . . ..... 791

    Deferred tax assets ... . . . . . . . . . . . . ....... 2,583

    Vendor non-trade receivables . . . . . . . . . . 7,762

    Other current assets . . . . . . . . . . . . ........ . 6,458

    Total current assets . . . . . . . . . . . . . …. . 57,653

    TMF Devine;

    Isn't !0,746 millions = 10.7446B?

    Can a company have 57.653B in Total Current assets and still have 120B in cash or cash equivlents? Did Apple double its current assets from Sept 2012 to today? I'm still confused. thank you

  • Report this Comment On December 07, 2012, at 4:19 PM, pondee619 wrote:

    OR are we talking about cash and cash equivalents ($10,747), Short term Marketable Securities ($18,383) AND Long-term marketable securities ($ 92,122) = $121,252 or $120B? I always considered cash and equivalents to be short term, which is why they were always separated from Long term securities.

    Where/when would one no longer consider an asset convertable into cash? Aren't they all?

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