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What You Should Take from Apple's Stock-Related Strategies

April 29, 2014 | About:
Riddhi Kharkia

Riddhi Kharkia

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While Google (GOOG) is known as a company that does things differently, Apple (AAPL) is equally famous for engineering and executing innovative strategies. The case in point is Apple’s 7-for-1 stock split that was announced by the management a few days back in order to make the Apple stock more accessible to a large number of investors (this is straight from its website). Apple’s split is preceded by Google’s historic stock split that took place in April itself, thereby making this story of splits a food for thought for tech analysts and investors.

Is There a Reason for This Slicing?

As I mentioned above, the company’s intent with this split (fourth in the history of Apple) is increasing the accessibility of Apple’s stock. Well, it definitely seems to be a legitimate reason, but there might be some other ends that Apple’s board might be trying to achieve through this split. One of the things that the company might want to accomplish with this split is to appease its shareholders for the slack growth rates over the past few quarters. Though this event would not add any value to Apple, it will enable easier and quicker trading in shares, and investors would be able to manage their positions in the stock in a flexible manner.

It is worthwhile to note that Apple’s share price has escalated approximately 5% over the last six days in the wake of the stock split announcement. Additionally, this split was announced by the management along with the results for second quarter fiscal 2014 wherein the company announced a payment of a $2.7 billion dividend made in the month of February. Besides a glamorous dividend, the company has initiated an Accelerated Share Repurchase (ASR) program through which it aims to repurchase approximately $12 billion of stock. This is in addition to the $21 billion of capital return activities that was executed by the company in the March quarter.

Cash Everywhere

The reason for mentioning all this data is to highlight Apple’s marvelous efforts at engineering a holistic strategy that is aimed at reinstating the confidence of shareholders. It is no surprise to investors that Apple has been slacking in growth for some time now and while news of its bold advent into wearable technology space floats on a daily basis, no robust development has been seen yet. Also, a good number of rumors are doing media rounds over the launch of iPhone 6, thereby making it Apple’s most awaited smartphone to date. It is difficult to say if this is good or bad news for Apple as it would be known once the product is launched. But surely this “iPhablet” would have to be notches above the previous versions to justify a sustainable demand.

Does This Split Bother You?

Let me come back to the massive capital return activities that are being pursued by the company. As per this article, Apple is eyeing a bond sale to the tune of $17 billion in order to support its share buyback program. It is quite unusual for a tech company to return cash to shareholders with such aggression and as such, it prompts various thoughts in the minds of investors and analysts. While there is no doubt that the future performance of the company will have a major bearing on share price, events like these attract investors who are interested in earning a steady income.

To sum up, this stock split by Apple complemented by a humongous share buyback program is indicative of its motive to extend the investor base and pressurize current “income-oriented” investors to stay with the company. Also, a price range around $80 after the split could make Apple a well-suited candidate for the Dow Jones Index that would only enhance the accessibility of the stock. In my view, investors should stay put with Apple for its results as well as its product portfolio and not be deterred by these events.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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