Payout Policy. Apple Firms with large cash in 2015

Transcription

1 Firms with large cash in 2015 Payout Policy Spring Apple- 03/2012 Apple announced plans for much of the $97.6 billion in cash it has accumulated from massive ipod, iphone, ipad sales. Apple planed to initiate a quarterly dividend of $2.65 per share in 2012 Q4, which began on July 1, Apple authorized a $10 billion share repurchase program from fiscal 2013, which began on September 30, The repurchase program is expected to be executed over three years, with the primary objective of neutralizing the impact of dilution from future employee equity grants and employee stock purchase programs. 3 Apple quarterly dividends 2014/06 : 7-for-1 stock split 4 Why did Apple pay cash to shareholders? Apple has cumulated lots of cash overseas However, Apple has to pay high tax if sending cash back to US Due to low interest rate, Apple borrow money to return cash to investors. Apple

2 Apple buyback and capital return Announceme nt Authorized buyback Expected total capital return 2012/3/19 10 billion 45 billion 2013/4/23 60 billion 100 billion 2014/4/23 90 billion 130 billion 2015/4/ billion 200 billion 2016/4/ billion 250 billion Apple issued debt to finance capital return program In 2014, Apple issued long-term debt of 12 billion with different maturities. In 2015, Apple issued long-term debt of 27 billion with different maturities 2016/02, Apple issued long-term debt of 12 billion with different maturities to sponsor cash dividends and share buyback. ( Apple issue long-term debt Security ID Declared Date Effective Date Maturity Date Currency Issuing Price Corporate Rate Amount (Mln) US037833BX /2/ /2/ /2/23 USD % 4,000 US037833BW /2/ /2/ /2/23 USD % 1,250 US037833BY /2/ /2/ /2/23 USD % 3,250 US037833BU /2/ /2/ /2/23 USD % 1,500 US037833BS /2/ /2/ /2/23 USD % 3,000 US037833BQ /2/ /2/ /2/22 USD % 1,000 US037833BN /2/ /2/ /2/23 USD % 500 US037833BT /2/ /2/ /2/23 USD 100 3m LIBOR+1.13% 500 US037833BR /2/ /2/ /2/22 USD 100 3m LIBOR+0.82% 500 XS /9/ /9/ /1/17 EUR % 1,000 XS /9/ /9/ /9/17 EUR % 1,000 XS /6/4 2015/6/4 2020/6/10 JPY % 250,000 US037833BE /5/6 2015/5/6 2020/5/6 USD 100 3m LIBOR+0.3% 500 US037833BC /5/6 2015/5/6 2017/5/12 USD 100 3m LIBOR+0.05% 250 US037833BH /5/6 2015/5/6 2045/5/13 USD % 2,000 US037833BF /5/6 2015/5/6 2022/5/13 USD % 1,250 US037833BG /5/6 2015/5/6 2025/5/13 USD % 2, Apple share price performance Apple Google Dow Jones Yahoo 10 Microsoft vs. Apple ( ) Microsoft special dividends APPLE Microsoft

3 Microsoft quarterly dividends Microsoft payout 2004/07: announce special dividend $3 per share $37 billion 13 Source: 14 Microsoft cash Microsoft cash : $23.7 b 2001: $31.6 b 2002: $38.7 b 2003: $49.0 b 2004: $60.6 b 2005: $37.8 b 2006: $34.2 b 2007: $23.4 b 2009: $31.4 b 2010: $36.8 b 2011: $52.8 b 2012: $63.0 b 2013: $77.0 b 2014: $85.7 b 2015: $96.5 b 2016: $113.2 b Types of payout Why did Microsoft return cash? Cash dividends Share repurchases Acquisitions What would be the market reaction? Why?

4 GM dividends GM s earnings vs. dividends Dividends are sticky Reactions to dividend change Market-adjusted returns Yr-1 Q-1 (-1,+1) Q+1 Yr+1 Yr0-2 Yr0-3 Dividend Initiation Dividend Omission Stock price rises (falls) when firms announce dividend increase (decrease) 21 Dividend policy Theories Dividend irrelevance theory Dividend policy does not matter Investors can create their own (homemade) dividends and capital gains by selling stocks and reinvesting dividends Bird-in-the-hand theory Investors prefer cash since there is no uncertainty for cash Tax preference theory The tax for long-term capital gains is lower than dividends Investors prefer lower dividends to retain the cash for reinvestment 22 Factors favor low dividends (Personal) Taxes Transaction costs Long-term capital gains vs. dividend tax rates in US,

5 Regular dividend initiations Tax cut Factors favor high dividends Desire for current income Some individuals (such as widows, retired people) living on a fixed income would like to have high dividend income Corporate investors: only 30% of dividends will be taxed Pension funds: no taxes on either dividends or capital gains Uncertainty (bird-in-the-hand) Agency costs of free cash flow Firms with high dispersed ownership should have high dividends Dividends vs. firm value Real-world considerations Firm value or stock price Bird-in-the-hand Irrelevance Signaling (dividend information content) Clientele effect Tax preference Payout ratio Dividend signaling Clientele effect Dividends can serve as a signal for future performance Managers are reluctant to cut dividends (sticky dividend) Dividend increase implies that managers anticipate higher earnings in the future Some investors prefer high dividends, some prefer low Dividend policy can only increase stock price if there exists an unsatisfied clientele

6 Clientele effect Clienteles for various dividend payout policies : Group Stock Type High tax bracket individuals Low tax bracket individuals Tax-free institutions Corporations Zero-to-low payout Low-to-medium payout Medium payout High payout Once the clienteles have been satisfied, a corporation is unlikely to create value by changing its dividend policy. 31 Investors preference to dividends 32 Trading volume around dividends Dividends in different countries Dividend in different industries Empirical dividend patterns The stock market reacts positively (negatively) to dividend increases (decreases) Distinct national patterns Common law countries pay higher than civil law Firms with disperse ownership tend to pay more dividends Pronounced industry patterns Profitable firms in mature industries pay more

7 Empirical dividend patterns Dividend payout tends to be directly related to asset intensity and the presence of regulation Almost all firms maintain constant nominal dividend payments per share for long periods of time. Taxes influence dividend payouts, but the net effect is ambiguous Fewer firms pay dividends Aggregate dividends are huge Survey on dividend policy Dividend Decision Survey (2004) Survey on dividend policy Survey on dividend factors

8 What do we know about dividends? Aggregate payouts are massive and have increased over time. Dividends are concentrated among a small number of large, mature firms. Managers are reluctant to cut dividends. Managers smooth dividends. Stock prices react to unanticipated changes in dividends Trend of repurchases Cash dividends were the primary way to distribute cash to shareholders prior to mid-80s Between , aggregate value of repurchases increase 20% per year, but only 6% for dividend growth. From 1999, the repurchase amount is even higher than dividend amount Dividends vs. repurchases Share repurchases Open market share repurchases (most common) (Self-) Tender offer Fixed-price tender offer Dutch-auction tender offer Firm specifies a range of prices within which each tendering shareholder choose his minimum price Offering firm chooses the minimum price which can sell all shares pre-specified Private negotiation (greenmail) Accelerated share repurchases Fixed price vs. Dutch auction Market reactions to repurchases

9 Market reactions to repurchases Motivations for repurchases Increase EPS Signaling Excess cash distribution (reduce agency costs) Substitution for cash dividends Capital structure adjustment Wealth transfer from bondholders Takeover defense Employee stock options Actual buyback activity Open market repurchases provide flexibility Actual repurchase execution ratio varies a lot Long-run returns by completion Canadian evidence 53 9