If there was a financial cable show about hoarders, Apple could be the subject. Or, at least that’s how a growing number of large investors view the Cupertino, Calif. company’s decision to amass a mountain of cash without issuing dividends. One portfolio manager likens the inaction to getting a cash advance on your 11 percent credit card and squirreling it away in a savings account earning 0.75 percent annually.
“Who would ever do this in their personal lives?” a Delaware portfolio manager asked the Wall Street Journal. With a pile of cash surpassing the GDP of two-thirds of the world’s nations, Apple’s decision to not issue investor dividends “has been beyond the point of being rational for a while now,” one analyst says,
“Dissent is growing over the fruits of the company’s historic success,” according to the WSJ, citing sources close to top Apple shareholders. One investment fund, which owns $700M in Apple stock, says the tech giant is “destroying value” and “leaving money on the table by having such a large cash balance well below their cost of capital.”
Bernstein Research analyst Toni Sacconaghi believes Apple this year could pay a 4 percent dividend, repurchase $20 billion in stock and still add $10 billion to its mountain of cash. Further, the Cupertino, Calif. firm could acquire Netflix for $15 billion and still have money to reward investors. So far, Apple has only spoken of unspecified “strategic investments” it is considering.
Another advantage of Apple could be attracting so-called value investors, who seek out undervalued stocks. Christopher Bonavico, who manages Delaware Investments, says Apple could be undervalued by as much as 30 percent. Value investors could both bring stability to Apple shares. Currently, no value investors have Apple in their portfolio.
As Apple prepares today to release its first quarter financial report for 2011, it might remember Microsoft, which also followed the same course, eventually offering a $32 billion dividend to investors in 2004. So-called stock-based compensation has “perverted the balance sheets” of companies such as Cisco and Apple, writes the WSJ.
