Benzinga - by Shanthi Rexaline, Benzinga Editor.
Apple, Inc. (NASDAQ:AAPL) delivered a sweet surprise to investors on Thursday with its robust shareholder return strategy, propelling its stock sharply higher. The magnitude of the move is so significant that it dwarfs the valuation of some big companies.
What Happened: Apple unveiled an expansive buyback program, authorizing the repurchase of an additional $110 billion of its common stock. Furthermore, the company announced a 4.2% increase in dividends to 24 cents per share.
To put the magnitude of the buyback into perspective:
- It stands as the largest buyback in U.S. corporate history in terms of value.
- The value eclipsed the market capitalizations of 419, or roughly 84%, of the S&P 500 companies.
- Notably, esteemed blue-chip entities like Boeing, Starbucks, PayPal, Northrop Grumman, Ford, and eBay now boast lower valuations than Apple’s latest buyback offering.
- Only 66 out of 195 global nations possess GDPs exceeding $110 billion, according to Worldometer.
Why It’s Important: As companies grapple with stagnant revenue growth, they increasingly prioritize bolstering shareholder returns to sustain investor interest.
Notably, U.S. stock repurchases are on track to surpass $1 trillion for the first time this year, driven by significant buybacks from tech giants, as highlighted by global capital markets commentator The Kobeissi Letter.
In 2023, buybacks amounted to $795.1 billion, a slight decline from $922.7 billion in 2022, according to data from S&P Dow Jones Indices. However, fourth-quarter buybacks surged by 18% quarter-over-quarter to $219.1 billion, with the top 20 S&P 500 companies accounting for over half of the total.
The Information Technology sector led the pack in buybacks, with its fourth-quarter expenditure climbing 15.9% to $56.3 billion, constituting 25.7% of all S&P 500 buybacks. Unsurprisingly, Apple spearheaded the buyback spree, spending $22.7 billion during the quarter.
Interestingly, Apple’s former CEO and co-founder, Steve Jobs was not a big fan of shareholder returns. When a shareholder questioned him about this aversion in 2010, he reportedly said, “We know if we need to acquire something — a piece of the puzzle to make something big and bold — we can write a check for it and not borrow a lot of money and put our whole company at risk," Jobs said. “The cash in the bank gives us tremendous security and flexibility.”
Ginormous Piggy Bank: Apple’s substantial cash reserves, amounting to $162.34 billion by the end of the second quarter. Jobs’ thinking aligns with the growth-oriented philosophy prevalent in the tech sector. Instead of dividends or buybacks, growth companies prefer reinvesting profits in promising projects to drive stock appreciation.
Following Thursday’s buyback revelation, some social media users criticized CEO Tim Cook for prioritizing stock performance over visionary product launches.
Price Action: In premarket trading, Apple shares surged by 5.77% to $183.02, according to Benzinga Pro data.
Read Next: Elon Musk Wowed By Apple’s Biggest Stock Buyback — Will Tesla Follow Suit Or Remain Stuck In ‘Category 5’ Storm?
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