There's way too much chatter about what Apple (AAPL) has to do with its cash position and not enough about Apple's earnings. And I don't even want to go into the idea of the stock split. If you really need a stock split to buy, move on. The idea of buying just a couple of shares worked for buying Berkshire Hathaway (BRK.A) decades ago when it traded at similar prices, and it can work now.
Why doesn't the dividend matter in Apple and matter so much to me in Berkshire Hathaway? Pretty simple: earnings momentum. I was surprised at how little earnings momentum Berkshire has. Instead, Buffett focuses on book value. That's all well and good if the company is willing to buy back stock to take advantage of its discount, a discount that Warren Buffett chatters about throughout his letter.
But Buffett chose not to buy much stock at all. I regard that as somewhat quizzical if you really believe that your stock is undervalued. Further, even more oddly, Buffett highlights the IBM (IBM) buyback as being a terrific one, even though IBM is clearly overvalued compared with Berkshire when it comes to book value. If the market cared about book value, Berkshire would be much higher. It doesn't.
I have suggested here that if Berkshire wants to bring out its value and give shareholders a decent return, Buffett should give us a dividend.
So why do I not care about a dividend with Apple? Because I accept the dichotomy between a growth stock and a value stock. Buffett is trumpeting Berkshire as a value stock. When I buy a value stock, I like a dividend to help pay me to stay while the value is brought out. His love of buybacks is palpable. Berkshire is not paying you a dividend any time soon, as long as Buffett is in charge.
Apple, though, is a growth stock. It's got some terrific earnings momentum and can earn $55 a share for fiscal year 2012. That's phenomenal growth, and in classic earnings-per-share growth analysis, measuring the company's growth vs. its price-to-earnings multiple, Apple may be the cheapest growth stock I know.
So, if that is the case, why doesn't Apple use that cash hoard to buy back its own stock? Apple says it wants the cash for a rainy day. You need a Noah's ark kind of rain to put that money to work. Sure, it would have been terrific if Apple had bought stock a long time ago, but it didn't. Frankly, I don't care. It doesn't need to augment pure earnings by changing the divisor. That's just financial engineering unless the discount is so palpable that you must act. This is still tech. Someone could still come up with a better mousetrap in the foreseeable future, so maybe it won't be as cheap in, say, 2015 as it is now.
So how about a dividend? I would love one. Love it. But let's be real-world here. Why the heck are we being critical of Apple about the dividend, given the reward it has given you? Yes, we want that cash back, but I for one am not going to hold Apple's feet to the fire on this one.
My conclusion: you want Berkshire to go higher? Give us a dividend. You want Apple to go higher? Just keep doing exactly what you are doing. It's working. Enough said.
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