Is Apple's Aggressive Repurchase Program Good For Investors?

Apple is getting aggressive with its share repurchases. But is it good for investors?

Feb 8, 2014 at 12:45PM

In the last two weeks, Apple (NASDAQ:AAPL) repurchased a whopping $14 billion of its own stock, according to a report from The Wall Street Journal. The aggressive repurchase program comes after Apple announced weaker than expected iPhone sales for its first quarter, which sparked an 8% sell-off. Does Apple's aggressive repurchase program make sense for investors?

Aapl Flag Tmf

Not all buybacks are good buybacks
First, a buyback needs to be meaningful for it to really matter for investors. What is a meaningful repurchase program? More than $40 billion in repurchases in just twelve months certainly qualifies. That's what Apple CEO Tim Cook asserts Apple has achieved. Further, he noted to the Journal that no repurchase program has ever matched that magnitude in a similar span. Considering that Apple has traded at an average market capitalization close to $450 billion during this period, $40 billion is considerable, indeed.

But meaningful isn't the only qualifying factor for a good repurchase program. The company should also repurchase its shares at a good price. For a repurchase program to make sense, Buffett said in Berkshire Hathaway's 2011 letter to shareholders that the company's stock should be selling "at a material discount to the company's intrinsic business value, conservatively calculated."

To get one of the best examples of a well executed repurchase program, look no further than the world's greatest investor, Warren Buffett. A repurchase program he announced for Berkshire Hathaway (NYSE:BRK-B) in 2011 was based solely on valuation. If shares dropped below 110% of book value, Berkshire Hathaway would buy back shares. He later raised that floor for share repurchases to 120% of book value after deciding he thought the company was still a good buy at those levels. Berkshire Hathaway is up about 50% since Warren Buffett initially announced the repurchase program and investors have undoubtedly benefited from the repurchases Berkshire executed.

Buffett also says that a company should have ample cash on hand before a company considers a repurchase program -- at least enough to take care of both its operational and liquidity needs.

Apple's program
Apple's program is a prime example of an investor friendly repurchase program. Ample cash? No problem. The company reported $158.8 billion in cash when it announced its first-quarter results. Is the stock cheap? Apple trades at just 13 times earnings compared to the S&P 500 at about 17.5 times earnings.

Best of all, it's great to see Apple being opportunistic with its repurchase program. Though the company has until Dec. 2015 to repurchase shares, it has already spent the majority of the authorized $60 billion.

Not only is the program very shareholder friendly, but Apple's recent aggressive repurchase of $14 billion of its own stock after a sell-off suggests the board is confident in its pipeline. Apple CEO Tim Cook explained Apple's reason for the aggressive repurchase to The Wall Street Journal:

It means that we are betting on Apple. It means that we are really confident on what we are doing and what we plan to do. We're not just saying that. We're showing that with our actions.

With Apple shares trading lower, maybe hedge fund Carl Icahn will get his wish for an even larger repurchase program after all. Cook told The Wall Street Journal that it plans to share "updates" to its buyback program in March or April.

In a pricey market, solid dividend stocks still offer value
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple and Berkshire Hathaway. The Motley Fool owns shares of Apple and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers