Disgorge the Cash

By J.W. Mason

Companies used to borrow in the markets as a last resort finance investment in their business. Now it’s a front for shareholder giveaways

“All these people have a sort of parlay mentality, and they need to get on the playing field before they can start running it up. I’m a trader. It all happens for me in the transition. The moment of liquidation is the essence of capitalism.”
“What about the man in Rigby?”
“He’s an end user. He wants to keep it.”
I reflected on the pathos of ownership, and the ways it could bog you down.
—Tom McGuane, Gallatin Canyon

In January 2010, Wall Street Journal columnist Brett Aronds wrote a peevish article about Apple. Instead of wasting its money on this stupid tablet thing, he said, the company should “hand it back to its rightful owners. … The money belongs to stockholders: Give. Indeed Jobs should go further. Apple should—gasp—start borrowing, and hand that money back, too … the biggest innovation we’d like to see from Apple this season isn’t the iPad or iSlate or iTablet. It’s the iGetsomemoneyback.”

Given the spectacular success of the iPad launch a few months later, Aronds’ complaint would seem singularly ill timed. But no: It was prescient. In 2012, under the prodding of activist investor Carl Icahn, Apple announced it would begin paying dividends for the first time in its history. And it began a share-repurchase program to “return capital to shareholders” (in the words of its press release) that rapidly expanded in size. By last year, Apple’s share repurchases had reached a pace of $30 billion per year, on top of $11 billion in dividends. This tribute to shareholders represents four-fifths of the company’s cash from operations and slightly exceeds its $37 billion reported net income for 2013, compared with just $8 billion spent on fixed investment and $4 billion on R&D.