Does Apple's Peeling off of Dividends Signify an Uproot of Their Profit Tree?
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Chances are that if you have lived in the United States for any duration of time then you have used, own or at least laid eyes on an Apple product. A small town computer company turned tech behemoth through fine tuned simplicity, innovation and vision all in unison are reason enough to enamor over the company. Over the past year alone, Apple (NASDAQ: AAPL) has trail blazed through ranks of the Nasdaq, and with their latest dividend payout announcement, it does not appear that they plan on slowing down. After a jaw dropping first quarter earnings report of 46.3 billion dollars for fiscal year 2012, investors began flocking to the company by the masses and have salivated over their enormous pile of free flow cash, peaking at around 100 billion, until their long awaited dividend announcement as of late. This is great news for all of their newish, dividend seeking investors, but could come as a disappointmenet for those who’ve invested in this company for its’ innovation.
Anytime that a company is willing to offer a dividend is good news in the sense that they are willing to cut investors a share of their profits, confidence is likely being demonstrated and it provides a steady stream of income for the investor, regardless of performance. Now, applying that logic to one of the most profitable companies in the world should seem more attractive than the ipad's retina display, but is it really? Let's take a look at both sides of that coin...
Those that are seeing the apple half eaten on this issue view the permanent dividend announcement as an indication of a long term lack of visionary brilliance, once possessed by the late Steve Jobs, in current CEO Tim Cook. One, because it directly counters the business views of Steve, who hadn’t offered a dividend in seventeen years, and two, it signifies a potential inability to creatively use their immense amount of free cash flow to ensure the long term growth expected out of them. Now, to the other side of that argument; this dividend will surely attract a new wave of investors, such as those managing mutual funds who seek out dividend paying blue chips like Apple, but have previously shied away from the company because of its' price tag and/or the uncertainty of the technology sector. I don't want to question the rationale of their financial allocations quite yet, as this could very well prove strategic, but I can't see textbook financing becoming a successful trend for Apple. Maybe one day they'll even start providing some charity in the form of acquisitions for the less fortunate, like Sony (NYSE: SNE), who just might have their plug pulled by Apple TV.
I have personally questioned the long term future of Apple since the passing of Steve Jobs. The innovative and visionary brilliance, the bread and butter of Apple’s success, seemed irreplaceable and invaluable. Sure, the stellar brand recognition he created for the company would provide momentum into the next year or two and many Apple consumers and even investors may have never even associated the brilliance of the company with Jobs anyhow, but that momentum could eventually fade, rendering the companies innovative reputation defenseless. The perpetual vision required to sustain a company of this revolutionary magnitude is one of the biggest risks I associate with the future of Apple.
At the end of the day, Apple is still going to be an impressive stock by the numbers and their loads of cash still attracts more eyes than the latest iphone debut, but for long term investors it might be wise to mitigate risks by investing moderately until the company reiterates its’ innovative power and fends off any incoming competition under the guidance of Mr. Cook. With direct competitors such as Amazon (NASDAQ: AMZN) on the prowl with its "content is king" approach to the tablet world, at a substantially lower cost mind you, it will be imperative to maintain the edge that they've had for so many years with their impressive hardware aesthetics and iOS functionality. Above all though, to keep this Apple tree of profit sturdy and healthy, management and investors alike are going to need to remember two simple things:
Stay Hungry, Stay Foolish.
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