I have a theory that few of my APPL-owning friends agree with because, 1) shareholder value is an important metric, and, 2) they like dividends without putting in effort. As to #1, that’s OK. As to #2, that’s wrong.
Shareholders do not deserve dividends, in this case, specifically, Apple’s dividends. And, Apple should stop giving dividends to shareholders and stop buying back shares. Why? Shareholders do nothing for Apple and do not deserve anything except a growing stock price– only so long as the company grows and remains profitable.
Are They Owners?
The traditional argument is this. Shareholders are owners. Shareholders own the company. In this case, shareholders own Apple. I understand the legalities and the financial issues, but let’s compare the practicality of ownership vs. management and publicly traded companies vs. private companies.
As an example, let’s say I own a company that makes and sells a product. I sell shares of my company to others to raise capital to be used for manufacturing, market expansion, R&D, and so on. I become an owner, not the owner, because, by selling shares to raise capital my company gains additional resources (capital; cash on hand, equipment, people, facilities, etc.).
Fair enough so far, right?
I diminished my ownership for the better good of the company as a whole by taking in partners, so to speak, who then own some percentage of what I owned when I started the company. That situation is about as common as it can get in business. New investors provide the company with needed capital for growth and expansion.
Apple’s situation is different. When you buy shares of APPL as a publicly traded company, that money does not go to Apple. Your payment for the stock you bought went to another APPL shareholder. Apple gets nothing. Why should an investor in APPL be considered an owner and receive dividends from Apple when their investment did not go to Apple?
That’s the way the stock market and public trading is set up, yes, but once Apple started making sufficient profits to fund its own growth, the shareholders became less valuable to the company; almost to the point of no value at all.
Some publicly traded companies sidestep the problem I identified above with different classes of stock; some may receive dividends, others may have different voting rights (and often, less control over executive offices and board members), and so on, but that merely points to the problem Apple has these days.
APPL shareholders do nothing for Apple to deserve dividends.
If Apple’s board of directors and management dropped all buyback plans and scrapped the dividends, there is little the shareholders could do other than public crowing and a few lawsuits, or perhaps band together to push out executives and board members during a nasty annual meeting.
I see some value in share buybacks only so long as Apple does not retire those shares and can sell them on the market in the future for a huge gain, thereby increasing capital for new products, projects, expansion, etc. Otherwise, today’s APPL shareholders do not benefit Apple by their stock purchase and should not share in the profits.