Quote:
Originally Posted by HansTWN
As they don't seem to have any ideas for new products, a buyback seems like a good use of idle funds, funds that belong to their stock holders, anyway.
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You buy back stock when you feel that the return on the stock repurchased is greater than what it would be to invest otherwise.
Other investments could be...
- research and development
- capital investment
- acquisitions
- debt retirement (bonds)
- other investments (stocks, funds, bonds, interest bearing accounts)
Another option would be to pay investors via an increased dividend or a one time distribution. This option diminishes the value of a company (the company is worth its current value minus the distribution). If a dividend is paid quarterly, it can be attractive to investors looking for regular income. A one time dividend could be seen as a signal to sell -- you get your payout, the company is worth less, so you move on.
Apple has enough money to do all of these things and is probably doing most of them -- including paying dividends.
Buying back stock drives the stock price up. The value of the company does not change but there are fewer shares. Also, this increases the dividend going forward assuming no other changes -- same amount to distribute, but fewer shares to distribute it to.
So, a significant buy back should be good for those who purchase or hold AAPL and doesn't preclude other growth focused moves.