The news from Wall Street that Apple would begin paying stockholders a dividend was positive enough to make shares of the giant computer maker rise over 2 percent last Monday to nearly $600 a share in late afternoon trading.
It was rumored after the recent release of their newest hot product, the iPad 3, that the firm would begin sharing a portion of the $98 billion they have in cash with investors.
Jefferies analyst Peter Misek said he had expected Apple to begin paying dividends in the second quarter.
“[The] buyback we did not expect,” he added, referring to Apple’s announcement that it will spend $10 billion on a stock repurchase program. He said the decision is positive for shareholders as well as the long-term strategy of the company.
“They’re trying to position themselves for the long haul,” Misek said.
There are, however, some gurus who disagree, like Michael Sansoterra of the RidgeWorth Large Cap Stock fund, an owner of the stock. He fears one negative is that the stock has appreciated so much that fund managers are approaching the limits on how much of a single stock their fund can own.
“We will trim the stock when we reach those numbers,” he said.
The first iPhone was introduced in 2007, and since that time the price of the stock has risen nearly 400 percent.
From wsj.com: “The cash topic has long been sensitive at Apple. Mr. Jobs, who saw Apple almost run out of cash after he returned to the company in 1996, frequently told colleagues he was against returning cash to shareholders. He was convinced to do a buyback in the wake of the Sept. 11, 2001, terrorist attacks as the stock market fell, according to a person familiar with the matter. After that, several executives thought the company should continue to do buybacks because the stock price seemed very cheap, this person said.”
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There was more talk that the economic recovery had momentum with the third month in a row of positive news on the employment front. And the gains were spread widely across the country and among the major sectors of manufacturing, health care and business services. “There are better days ahead,” the president said. “Our job is to keep this economic engine turning.”
In his New Yorker column, James Surowiecki writes it could be real and sustained this time around: “One good sign is that Americans are buying new cars again. That’s a major shift: annual new-car sales fell from a pre-recession peak of 17 million to just 10.4 million in 2009, a 30-year low.”
The economy did see a recovery at the time, even though car sales did not. Throw in increasingly stringent underwriting, making it harder for most to borrow money, and the caution over making high-end purchases increased, which caused people to stick with their old cars longer, or when they did buy, it was more from the previous-owner lots.
“It’s no coincidence that the stock prices of auto-parts stores, like AutoZone, have risen in recent years,” Sorowiecki writes. “But the result of this is that the age of the average American car has kept going up, too; last year, the average car on the road was 11 years old – an all-time high. This means that there is a lot of pent-up demand for new cars, and there are signs that potential demand is starting to translate into active demand.”
On top of this have been what Sorowiecki calls a “more important source of pent-up demand.” That would be the younger Americans who have been living the last few years with mom and dad.
“Perhaps the most striking feature of this economic downturn is the way it changed the rate of household formation,” Sorowiecki writes. “Between 1947 (when the government first started collecting data on the subject) and 2007, the number of households in the U.S. rose every year, closely tracking population growth. This recession dramatically broke the trend. In 2008, 2010 and 2011, the number of households dropped, even as the population continued to grow. As Gary Painter, an economist at U.S.C., has argued, the decline in household formation was largely a response to the slow economy and soaring unemployment among the young.”