Sd#52 Better Than Tant

We’re coming at you from Vegas . . . and not the Area 51 holding cell we were worried about.  The recording connection is a little off, so you might notice some wormhole issues. Enjoy!


Fast Lane:

Talking PointThe Failings of the Nielsen System

Zuke’s Favorite: Can Lego’s even go 88MPH?
Zohner’s Favorite: John Carter of 1957
Stark’s Favorite: OK Go-pid
Schmidty’s Favorite: Time Lapse from ISS
Squishy’s Favorite: The sports geek in me is thrilled for the upcoming train wreck

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  1. Hi Guys – thought I would help out on your dividend / buy back question (the following isn’t 100% accurate but it gets the message across).

    Firstly, company share prices represent a price that people are will to trade at (ie buy / sell the share). It represents the investor’s current view of how much the cash the company has now plus future earnings. Share price = (Cash + Future Value) / number of shares

    So – if things are going well for a company, their future earnings should increase and that increase is reflected in their current stock. If the market things that a company will report profits of $Xm and then the company reports $X+Ym (ie higher than expectation) then (all things being equal) their share price will increase. If they fail to met expectations (ie RIM) then their share price will decrease.

    There are two ways for shareholders to get cash in hand if they own shares – they can sell them or the company can pay its shareholders a dividend (think of a bank paying interest to your bank account – it isn’t the same but the mechanics are close enough).

    So – Apple has decided to return some of its free $100b of cash to its shareholders in two (2) ways.

    One is via a dividend. They will make a payment to their shareholders (send them a check / transfer $ into their bank account, etc). This will reduce the cash Apple has on hand and their share price should go down (all other things being equal).

    The other is via a buy-back. Effectively, Apple will buy back shares at the current market price. There is little difference to the shareholder between selling to Apple and selling on the market. From Apple’s point of view, their cash will reduce, but the number of shares on issue will also reduce and thus (all other things being equal) the share price shouldn’t move.

  2. So … and now for a history lesson … typically American companies haven’t paid dividends for various reasons ranging from not tax effective to the believe that the company could do more with the money that their shareholders could (this was Steve Job’s view).

    Apple argued that we will take the money that we could have paid as a dividend end, invest it in something and earn more money – thus you will see the value of your share go up.

    Or … you, the investor, can have the money and you will just go and waste it on a slurpee.

    BTW – the companies in the rest of the English speaking world typically pay dividends … their tax laws are more advanced than those in the US.

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