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Apple Is Hiding Behind Governance Instead of Going for Growth


There's an old saying that goes, "Never bring a knife to a gunfight" that implies one need be as well-armed as their opponent should they find themselves in battle. In some ways, as Apple (AAPL) shareholders convene in Cupertino today for their annual meeting, it feels as if the company is wielding a knife, amidst an angry, gun-toting mob.

As much as CEO Tim Cook's deference to doing what is best for shareholders is laudable, anyone who follows finance knows full well that 99% of the time these investor votes are little more than a formality, or a corporate governance dog and pony show.

In the weeks leading up to the 2013 confab, numerous ideas have been put forth that would attempt to move some of the company's cash hoard into the hands of investors, and also lift the stock price along the way too.

By now, the stakes have gotten so high, the analysts such as Walter Piecyk of BTIG say even a 50% increase in Apple's one-year-old dividend would be a disappointment.

"The meeting is about money for the investors. That's what they want to hear about. I'm not sure Apple is necessarily on the same page as them," Piecyk says in the attached video, where he acknowledges some investors want to see the dividend raised 70% to yield 4%. Anything below that, he says, risks underwhelming investors.

To put that into context, you have to look at some numbers. Apple's current quarterly dividend is $2.65 per share (or $10.60 annually) and yields about 2.4%, largely due to the stock's 35% drop. It costs the company about $10 billion a year to pay it, which makes Apple's dividend expense larger than about 40% of the companies in the S&P 500. To be fair, everything is outsized about Apple these days, including the cost of its 5-month decline which has seen over $200 billion of market value get torched, which is the equivalent of Procter & Gamble (PG) or Johnson & Johnson (JNJ) just disappearing.

Truth be told, the cash talk is really a diversion, and an unfortunate one at that, from what Apple and its investors really need to be focused on. As my colleague Jeff Macke wrote in a recent piece, ''activism won't save Apple" since the company has "lost its way as a disruptive creative force."

"Rather than being focused on the dividends and the share repurchases, maybe people should look at how Apple is going to restimulate growth," Piecyk says, pointing out that investment like that does require a lot of cash. And while some have suggested that lowering a $450 per share entry barrier via a stock split might make sense, Piecyk says that "wouldn't change anything about the intrinsic value of the company" noting that Apple is already a popular and widely held stock.

Still, the big challenge Apple faces remains the fact that its earnings growth is pegged to slow to just one percent this year, and that, more than anything is why the shares have fallen so far so fast.