Neil Cybart: Why Apple's market value trails its share price

In the time it took Apple’s market cap to grow 200%, its share price climbed 264%.

From Cybart's "Apple Share Buyback Impact on Market Cap and Share Price" posted Wednesday to Above Avalon subscribers ($):

Here are the major market cap milestones for Apple:

    • August 2nd, 2018: $1 trillion market cap
    • August 19th, 2020: $2 trillion
    • January 3rd, 2022: $3 trillion

And here are Apple’s closing (adjusted) stock prices for the days in which a market cap milestone was reached:

    • August 2nd, 2018: $50 per share
    • August 19th, 2020: $115
    • January 3rd, 2022: $182

While Apple’s market cap increased by 200% between August 2nd, 2018 and January 3rd, 2022, Apple’s share price increased by 264% during the same time period.

The explanation behind this divergence is found with Apple share buyback’s impact on the number of shares outstanding. As Apple buys back its shares, the number of shares outstanding declines because the company retires repurchased shares and takes them out of circulation instead of keeping them on the balance sheet.

My take: It's a simple formula. Market cap = share price X number of shares outstanding.

24 Comments

  1. Miguel Ancira said:
    very basic math, but as long as the gap keeps growing, maybe regulators will not be as inclined to turn their eye towards Apple, because large numbers catch their attention…

    2
    January 6, 2022
  2. Bart Yee said:
    For many of us AAPL investors, we may encounter some turbulence from time to time, please be sure your seat belt is buckled low and tight around your hips. Then sit back, relax and enjoy the flight. The weather may be chilly on takeoff, but should be much improved by the time we reach our destination or stops along the way.

    9
    January 6, 2022
  3. Kirk DeBernardi said:
    Excuse to raise the dividend?

    Helps the “revenue neutral” goal, doesn’t it?

    Jus’ sayin’.

    2
    January 6, 2022
    • John Butt said:
      Not only that but for overseas investors dividends can be more tax efficient than capital gains.

      0
      January 6, 2022
    • Bart Yee said:
      Dividend raising for Apple is sort of a no win situation. They first started dividend rates at $2.65/quarter = $10.60/share back in August 2012. The share price at that time was split adjusted ~$24 so allowing for a 28X division, the share price was $672. This gave a yield of 1.577%, pretty decent for a tech stock at that time.

      I haven’t found a graph of AAPL dividend yields over time but we know that AAPL share price appreciation has always outpaced annual dividend yield increases. Per Investopedia, Apple’s quarterly dividend grew by an annualized rate of 9.1% from the second quarter of 2016 to the second quarter of 2021.

      Apple’s quarterly dividend as of the second quarter of 2021 was $0.22 per share. Based on Apple’s stock price as of July 18, 2021, of $149.39, its annual dividend yield was 0.6%. Today, even with the recent pullback, Apple’s share price increase has pulled the dividend yield down further to 0.51%.

      It’s certain Apple will raise its dividend again after the annual meeting, and the raise will be in the 7-10% range, to 0.94-0.97/share. That would barely raise the yield at current price to 0.56%. As an exercise, to get back to the 1.5% yield, Apple’s dividend would have to be $2.58/share annually or $0.645/quarter, an almost 3x increase, which is unlikely to happen.

      Currently, Apple is paying out ~$3.61B/ quarter, $14.5B annually in dividends. At the higher yield of 1.5%, that payout would be $10.6B/quarter and $42.4B annually. That’s a huge chunk of cash to be doling out and mighty tax inefficient for shareholders, although providing a somewhat improved income stream. Apple’s share buybacks are a much more efficient way to return money back to shareholders (at the time of their appreciated share price selling choice) and much more tax efficient for all, in addition to effects on EPS, share ownership, and cash neutral goal.

      So at these price and yield levels, Apple is never going to be a real dividend play anymore and income investors would just have to settle for superior share price appreciation. Such a shame, a tough decision.

      0
      January 6, 2022
      • Kirk DeBernardi said:
        Bart Y. —

        It’s definitely a boat to balance as dividend payouts are a polite and glad-handed way of putting money on the table to keep investors satisfied about the faith of performance you have in your business, but admittedly, the healthier spend is retiring shares…until the next split where the process rolls over to keep that boat balanced all over again.

        1
        January 6, 2022
        • Hugh Lovell said:
          If the stock goes to $200/share, do you think it’s likely that Apple will split shares again? Maybe a two for one split, so share price returns to the $100/share range.

          0
          January 6, 2022
          • Robert Paul Leitao said:
            Hugh: I don’t think Apple would split the shares at $200. Because most brokers provide commission free trades today, there’s no longer a benefit to round lot purchases (100 shares) because there’s no benefit in terms of savings on commission costs per share. Fractional share purchases are also now becoming more common for investors. I don’t see a reason or benefit for Apple to split the shares at $200. There’s already over 16 billion shares in the fully diluted share count.

            0
            January 7, 2022
      • Robert Paul Leitao said:
        Bart: I would not use the word never. Apple’s net income payout through dividends in FY2021 was about 15.25%. That’s an extraordinarily low payout percentage. Of course, this is in the context of massive share repurchase activity. As for tax inefficiency, it depends on who or what entity owns the shares. For pension funds and other non-profit institutions, there is no consequence and for investors holding shares in tax-deferred retirement accounts such as traditional IRAs, there’s no tax differential between capital appreciation and dividend receipts when funds are withdrawn. The same is true for Roth IRAs. Outside of Apple, I’m decidedly a growth and income investor. It’s unusual for me to open new positions in equities with dividend yields of less than 2%. This might cost me some capital appreciation opportunities by being less aggressive on growth, but it reduces my risk of having to sell equities during adverse market conditions. As retirement planning appears on the horizon, creating a current income stream reduces the risk of pre-mature asset depletion from being forced to sell shares during bear market conditions to cover retirement costs. While I agree with Apple’s current focus on share repurchases as a means to return capital to shareholders, as the company approaches a net cash neutral position, I’d like to see management focus more on the dividend and dividend yield. Dividends are something the market can’t take back from investors. Increasing the dividend and the yield would actually increase the number of funds interested in the shares and bring into the mix growth & income investors. This is another way to support the share price.

        0
        January 7, 2022
  4. Paul Lane said:
    When Apple reintroduced dividends in 2012 they were yielding 1.577% but have fallen steadily to around 0.51% (thank you for that info Bart). The share buyback program also started in 2012 if I recall correctly. Which in my mind raises the question: if the directors thought a dividend yield of 1.577% was appropriate on introduction are they admitting they were wrong by allowing it to fall away so much?

    P.S. Here in Australia capital gains are taxed at half the rate of dividends – so I much prefer the share buyback program.

    1
    January 6, 2022
    • Robert Paul Leitao said:
      Paul: The last several years (going back to the Great Recession) have been an extraordinarily different time due to the ultra-low interest rates and the low rates of inflation. In favor of dividends is the payouts are something the market can’t take back. As interest rates rise and with it the opportunity costs of investing in equities, dividends reduce the opportunity costs and provide at least a partial inflation shield because they serve as a current income offset to rising prices. In FY2021, Apple paid out about 15.25% of net income in dividends. That’s a very low rate for an established, dividend-paying enterprise. The low payout and the very low dividend yield pretty much moves Apple out of consideration for investment by income-focused funds. Increasing the dividend and the effective yield may increase demand for the shares and thus provide support for the share price.

      0
      January 7, 2022

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