With buyback and dividend, Apple is golden

Mar 20, 2012
<p>IR awards survey declares them the most popular cash moves</p>

The warm reception Apple received yesterday when it announced a buyback and a new dividend is a sign of the times. According to the survey behind this week’s IR Magazine US Awards, buybacks are the most preferred move for companies with cash piles, favored by 41 percent of the 150 buy-side and sell-side analysts surveyed. 

Initiating or increasing dividends is the next most popular move, cited by 39 percent of respondents. Further down the list, acquisitions, R&D and organic growth get a smattering of support. 

The financial crisis of 2008-2009 and attendant credit crunch seem to be but distant memories, with only 9 percent of analysts advising companies to pay down debt and a handful saying they should sit on cash. 

Buybacks have sometimes been derided by investors, especially considering a lot of companies launch them when things are going well and stop when they’re in the dumps. Buying at the top then ceasing at the bottom is not a good investment strategy. 

Kate Scolnick, Seagate Technology’s new vice president of IR, used to be a buyback skeptic but has become a convert. She recently moved from Intel, where she spent a stint after it acquired her former company, McAfee, and has seen investors enthusiastically greet buybacks by both Intel and Seagate in recent months. 

‘Particularly in technology right now, there’s strong support for using the balance sheet defensively,’ she says. ‘If you have leading products and a story on the offense, you’re really attractive to investors. But you still have to be mindful of the trends that are attracting folks, and buybacks are one of those trends.’

Apple’s new dividend is also highly popular among investors scrambling for yield in a still uncertain economic environment. 

For other technology companies that have started paying dividends in the last year, it’s ‘a real step up,’ says Scolnick. Seagate restored its dividend in June 2011 after suspending it in April 2009, and investors applauded. 

Cisco initiated the first dividend in its history in March 2011, acknowledging to the world that it had matured from a fast-growth company into a GARP or value play. Apple, by contrast, means to send no such message.

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