Capital plan of Apple is the issuing of debt to fund $100 billion in share repurchase plan for the first time and the company will pay high amount of dividend till the end of 2015. Company will pay a dividend in every quarter till the end of 2015 with a growth rate of 15% each quarter to $3.05 a share. Annual payment of dividend would be $11 billion (Apple).
The Meaning of Dividend policy:
Some or complete part of net income which is paid out to shareholders is known as dividend. It is paid in the form of cash or shares. The decision of paying the dividend direly impacts over the company’s image and wealth of the share holders. Dividend policy is the strategy or the approach that the company has adapted to distribute the profits back to the shareholders of the company. When the company is in growth stage, then the policy has one more important aspect in it i.e. the company might also decide that the company re-invest their profits (retained earnings) in the business and will not pay dividend. The company designs a schedule of payment for distributing dividend. Well developed companies pay dividends with the decided policy or structure for the payment period. And on some occasions such companies also pay special dividends. Shareholders can make perceptions by analyzing the dividend payment schedule. And the stock price could be directly affected by the dividend.
Debt financing for payment of Dividends:
According to the new capital plan of Apple, the company is issuing debt to fund $100 billion in share buyback program for the first time and will pay high amount of dividend till the end of 2015. This year dividend will be double in amount from the last year dividend and with this dividend declaration the Apple has become one of the largest dividend paying organizations in world. Apple is borrowing a 30 years debt from two banks to pay off the dividend for next three years (Apple).
Factors did the board of directors considered while declaring the dividend:
The company will pay a dividend in each quarter till the end of 2015 with a growth rate of 15% every quarter to $3.05 a share. Annual payment of dividend would be $11 billion (IBN Live). Their policy is to continue to generate or raise the cash in excess of their needs of their business, generating investments to sustain the flexibility to obtain benefit of strategic opportunities. This dividend will also attract the new share holders to invest in the company for a long term with an incentive of a growing dividend. And it will also represent the company’s financial position is growing with the growing revenue.
In last September Apple made a record of $702 per share price. After that remarkable achievement the company has started losing its market share and also share price has decreased by 44% per share (Chang).
Meaning of Buyback shares:
Buyback of shares is defined as when the company repurchases its own outstanding shares with the objective of increasing demand and decreasing the supply of shares from the market. This strategy is applied when company is facing difficulties in increasing the price of the share. By buying back the company will increase the demand of the shares and it will increase the price of the shares. Buyback shares policy increases the percentage of the share that company owns.
Reasons for declining Apple’s share price:
Apple’s relies very much on the introduction of new brand launches for driving their revenue and growth. Apple did not launch any brand in the first quarter of 2013 so it did not enjoy similar profit growth as previous year 2012 but still it has a growth in revenue by the growth in sales of iPhones and iPads. Samsung and Google are also giving tough competition to Apple.
Apple’s strategy to gain back its market share:
The Apple claimed that they will increase their dividend by 15% quarterly and it will continue to grow till 2015. The management said that they have disastrous brand in the pipe line to launch in the fall of 2014. The market is changing with the changing sentiments of people and this announcement by Apple of launching new brands in 2014 has created good impact over the share price of the company.
Why Apple buy back its share’s:
Apple is creating shortage of their shares in the market to increase the demand of the shares. It is also creating the demand by announcing a huge amount dividend for share holders.
Advantages and disadvantages of buying back shares by Apple:
Advantages: By repurchasing of shares, the company is increasing its share price. The declaration of 15% growing dividend in every quarter has increased the demand of the shares and it has started building again the successful image of Apple in the mind of present share holders and also in potential buyers in the market (Rogowsky).
Disadvantages: Apple is borrowing a 30 years debt from two banks to pay off the dividend for next three years. Large portion of debt is affecting poorly on the financial position of the firm in the market.
Factors considered by the directors of Apple for buying back the shares:
After the announcement of repurchasing of the share by Apple, this news has created a considerable activity in share market. According to the FactSet, the price of stock has increased from $406.10 to $460.71 in that particular period. Analysts reported that they analyzed the repurchases of shares has been the key factor in driving the prices of stock higher in the previous two weeks.
Works cited
Apple. Apple More than Doubles Capital Return Program. Apr. 2013. 17 May 2013. < http://www.apple.com/pr/library/2013/04/23Apple-More-than-Doubles-Capital-Return-Program.html>
Chang, A. Apple's record $60-billion stock buyback cheers investors. Los Angeles Times, Apr. 2013. 17 May 2013. http://www.latimes.com/business/technology/la-fi-tn-apple-stock-buyback-20130423,0,2360457.story
IBN Live. Apple profit shrinks for the first time in 10 years. Apr. 2013. 17 May 2013. <http://content.ibnlive.in.com/article/24-Apr-2013tech/apple-profit-shrinks-for-the-first-time-in-10-years-387413-11.html>
Rogowsky, Mark. Apple's $50 Billion Buyback Won't Dent its War Chest. Forbes, Apr. 2013. 17 May 2013. http://www.forbes.com/sites/markrogowsky/2013/04/26/apples-50-billion-buyback-wont-dent-its-warchest/
