Monday, March 19, 2012

Felix opines on Apple's dividend.

Felix Salmon, talks about Apple's dividend.  I usually agree with what Felix says - he's a smart, insightful guy, but I think he's off base here on a couple of points.

First he argues that Apple has no control over the level of the dividend yield (D/P) because Apple can't set its stock price.  This is plain wrong.  Sure, Apple can't control its stock price, but it should at least think about the level of the dividend that it is paying relative to the stock price.   Personally, I think that the 1.8% yield is pretty healthy.

Second, Felix doesn't think that the firm should issue debt.  He says - what would the firm do with the cash?   Well, the firm could buy back stock.   As any finance students knows, the firm's cost of capital is based on its WACC.  Debt is tax deductible, and for a firm that is so crazy profitable as Apple, any sort of tax deduction would seem like a good idea.  This would involve a lot of stock buying back, but so what?

Still an interesting post and worth reading.