Eddy Elfenbein on Apple (AAPL) from his weekly Crossing Wall Street note … and a reminder that if you’re owning or watching any of the stocks on his Buy List for 2013, he will help you.
Apple Gives $100 Billion to Shareholders
One of the big catalysts for the stock market this week was the dividend hike from Apple (AAPL). Although the legendary iStock isn’t on my Buy List this year, the company is so large, it can move the market all by itself.
Apple said that it’s raising its dividend by 15% to $3.05 per share. The company is also increasing its share-repurchase program by $10 billion to $60 billion. The combined total of the dividend and share repurchase comes to $100 billion that Apple is paying out to shareholders. To put that in context, the new dividend works out to $12.20 per share for the year. Ten years ago this week, the whole stock was going for $6.60 per share. Apple is now sitting on a bank account of $145 billion. That’s enough to buy every single team in the NFL, NHL, NBA and major-league baseball.
Interestingly, Apple is borrowing money for its dividend and buybacks. That may sound odd, but rates are so low — hey, why not? I think the Apple news clearly gave investors a big confidence boost. This was especially true after the AP’s Twitter account was hacked. The hackers sent out some bogus tweets, and within a few seconds, $160 billion in market value was erased. So yeah, that kind of stuff tends to put people on edge.
Another sign of a calmer market is that the yield spread between junk bonds and Treasury bonds has fallen to a two-year low. This is exactly what we want to see. Investors are willing to take on more risk with their money. That’s why these higher dividends are so important. They can lure money away from rock-bottom yields in the Treasury market.