I was on CNBC today discussing Apple (AAPL). I love the company but find it hard to get excited about the stock.
The big reason why is its dividends and capital return plan.
As of now, Apple has paid out $130 billion as part of its plan. It has $200 billion in cash today -- and $55 billion put on a credit card to fund the buybacks because most of its cash is outside the country.
If Apple had never done a dividend and buyback plan, it would have $330 billion in cash and no debt.
In my opinion, the stock hasn't really been supported by all the financial engineering. Here's why.
In September 2012, Apple had a $560 billion market cap and about $120 billion in cash (with no debt). The EBITDA was about $55 billion. This means the market cap to EBITDA (ex cash) was about 7.9x. That's pretty cheap compared to lots of other fast-growing tech companies.
Today, Apple has a $690 billion market cap and about $200 billion in cash with $55 billion in debt, which will have to be paid back at some point. The EBTIDA is about $77 billion today -- so the company is about 50% bigger than it was almost three years ago (at least by profits). This means the market cap to EBITDA (ex cash) is about 6.3x.
It's the law of large numbers for Apple. Even though Apple's growing quickly and has grown its EBITDA by 50% in 2½ years, the market multiple on the EBITDA ex-cash is less.
Here's another way to think of it. Two and a half years ago, the market cap was $560 billion. Now it's $690 billion. That's good for shareholders, right? Well, the cash has grown by $80 billion and the debt has grown by $55 billion over that time. So the increase in market cap is basically the cash Apple has grown and debt it has borrowed. The value of Apple the company has stayed flat for 2½ years even though it's 50% bigger in terms of profits.
But you might say, "Eric, there's another $60 billion that's been paid to shareholders in dividends or gone to buying back shares." Yes, if companies want to go to their drive-in windows and start throwing out cash, their shareholders will surely pick it up.
But is Apple the company -- and the long-term value of its shares -- served well by throwing cash at shareholders instead of spending it on itself? I don't think so.
I would rather have seen Apple use $130 billion to buy Facebook (FB), Tesla (TSLA) and Twitter (TWTR) over these last five years -- which they could have done.
What do you think it would have done to Apple's stock price over the last 2½ years? It would not be flat, I can assure you.
Some Apple bloggers have argued with me, "Oh, Apple doesn't do big acquisitions. It would be too distracting to buy a big company like Facebook." I think this makes no sense.
Cash is a strategic weapon for Apple. The company should use it, not waste it by hoarding it and then throwing it in the streets at shareholders' feet.
Chris Dixon of Andreessen Horowitz tweeted a few months ago that Microsoft (MSFT) spent $32 billion on a one-time dividend to shareholders in 2004. It did nothing for the stock long term. The company could have spent that $32 billion on buying up every single Internet company (public or private) in the world except for Google (GOOGL) instead. (Apple, Facebook, Twitter and Google are part of TheStreet's Action Alerts PLUS portfolio.)
Apple is falling into the same capital waste that Microsoft did 11 years ago. CEO Tim Cook should put an end to it now.