As most everyone knows, Apple (AAPL) increased its dividend and stock buyback program on April 23. The dividend went from $2.65 to $3.05 per quarter or $12.20 per year. The company increased its share buyback program from $10 billion to $60 billion and plans for it to be completed by December 2015. By December 2015 the company will have returned $100 billion to shareholders which was about 26% of its market cap at the time of the announcement.
It is worthwhile to calculate the yearly "Rate of Return" or the combination of dividend yield and the decrease in shares outstanding that this program could achieve. Calculating the dividend yield is easy. At the current share price of $457 the shares yield is 2.7%.
Buyback Impact to Share Count
To determine the buyback portion of the "Rate of Return" one needs to adjust for how much of it will be used to offset the RSUs or Restricted Stock Units that are awarded to employees.
First it is helpful to know how many shares Apple has. As of the March quarter, there were 938.6 million outstanding shares and 946 million diluted shares which take into account options.
Shares (mil.) | Sept. '09 | Sept. '10 | Sept. '11 | Sept. '12 | March '13 |
Outstanding shares | 900.7 | 917.3 | 929.4 | 940.7 | 938.6 |
Diluted shares | 914.4 | 928.8 | 939.5 | 948.2 | 946.0 |
Delta # | 13.7 | 11.5 | 10.1 | 7.5 | 7.4 |
Delta % | 101.5% | 101.3% | 101.1% | 100.8% | 100.8% |
Source: Apple 10-K and 10-Q filings
Next let's take a look at how many RSUs the company has awarded over the past four-and-a-half years. It has ranged from 6.2 million in fiscal 2010 to 7.8 million in fiscal 2012. So far in the first six months of fiscal 2013, Apple has awarded just over 4 million RSUs. At the current rate, the company is on track to increase its shares by 0.86% in fiscal 2013, which is similar to fiscal 2009 and 2012.
At the current share price of $457, Apple will need to spend $3.7 billion of its buyback program on a yearly basis to offset 8.1 million RSUs it would issue and not have the share count increase.
RSUs (thousands) | Sept. '09 | Sept. '10 | Sept. '11 | Sept. '12 | March '13 |
Balance | 7,040 | 12,263 | 13,034! | ! 14,446 | 15,005 |
Granted | 7,786 | 6,178 | 6,667 | 7,799 | 4,059 |
Vested | (1,935) | (4,685) | (4,513) | (6,305) | (2,790) |
Cancelled | (628) | (722) | (742) | (935) | (509) |
Ending | 12,263 | 13,034 | 14,446 | 15,005 | 15,765 |
Granted % of shares | 0.86% | 0.67% | 0.72% | 0.83% | 0.43% |
Ending % of shares | 1.36% | 1.42% | 1.55% | 1.60% | 1.68% |
'Cost' of RSU's ($ bil.) | $3.56 | $2.82 | $3.05 | $3.56 | $1.85 |
$457 |
Source: Apple 10-K and 10-Q filings
Through the March quarter, Apple has spent $1.95 billion buying back shares. To reach its goal of $60 billion by December 2015, the company should spend $5.28 billion per quarter. On a yearly basis, the total buyback would be $21.1 billion. When you offset that by the $3.7 billion used for RSUs, there is $17.4 billion per year available to decrease the share count. That would lower the share count by 4.1% on a yearly basis.
Yearly Buyback ($ bil) | $21.1 |
RSU offset | ($3.7) |
Remaining Buyback | $17.4 |
# of shares (mil.) | 38.1 |
4.1% |
Total "Rate of Return"
Therefore the total "Rate of Return" for the dividend and buybacks is 6.8%. Overall a 6.8% rate of return is nothing to sneeze at given the current interest rate environment and potential for price appreciation.
Stock Options Have Minimal Impact
One other factor to keep in mind is stock options, but this is having less and less of an impact on the share count. The number of outstanding options has decreased from 44.1 million in September 2008 to just over 5.2 million in March 2013. The company has not granted any new options in the past six quarters and only one thousand in fiscal 2011.
Options (thousands) | Sept. '09 | Sept. '10 | Sept. '11 | Sept. '12 | March '13 |
Balance | 44,146 | 34,375 | 21,725 | 11,866 | 6,545 |
Granted | 234 | 34 | 1 | 0 | 0 |
Assumed | 0 | 98 | 0 | 41 | 29 |
Cancelled | (1,241) | (430) | (163) | (25) | (6) |
Exercised | (8,764) | (12,352) | (9,697) | (5,337) | (1,328) |
Ending | 34,375 | 21,725 | 11,866 | 6,545 | 5,240 |
Source: Apple 10-K and 10-Q filings
Stock Outlook
As I wrote on Forbes.com on April 29 when the shares were $417, I believe the stock had probably seen a bottom and should move to $500 or higher over the next year. With a dividend yield at that time of 2.9% and a buyback yield of 4.5% for a total of 7.4%, there should be support at that level and a rebound in the stock would be helped by a change in sentiment since it has been so overwhelmingly negative.
With the 50 day moving average flattening and as we get closer to new product announcements, I believe the shares should appreciate nicely. However, as with most stocks it will probably be a bumpy ride as seen in the chart below.
Source: stockcharts.com
Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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