What Should Apple Do With its Cash Problem? (AAPL)
On Friday, CNBC’s “trading guru” Jim Cramer offered a suggestion to what tech giant Apple, Inc. (AAPL) could do with all of the $137 billion in cash it is just sitting on. This is in the wake of activist investor David Einhorn’s lawsuit against Apple for not reinvesting earnings or paying them out to shareholders. Cramer believes Apple should enter the telecommunications world and become a cable provider.
In the midst of Apple’s 30% decline from its all-time high stock price in September, some analysts suggested that the company should increase its dividend as a way to reward investors and possibly attract new investment. However, the company has continued to be content with just hoarding its cash until it finds something, anything it can do with it.
Investor David Einhorn, who has a significant stake in Apple stock, has not been pleased with this philosophy. He believes, to the extent of getting lawyers involved, that Apple should do something of value with this cash like reinvest it back into the company or make shareholders like him a little more wealthy. Now, Apple and company’s with an “excess cash problem,” are facing scrutiny from all types of analysts and pundits on how cash hoarding is a problem to investors and the economy alike.
But Jim Cramer offers a different point of view. Cramer takes the late Steve Jobs’ theory of how Apple should make a product that is superior to everyone else. Apple should create a product that consumers had no idea they needed or wanted. That is what they did with the iPod then the iPhone and currently the iPad. The question now is where can Apple go? What more can this company do to innovate and make a splash that takes everyone by surprise?
It is rumored that Apple is in the process of developing a TV that could revolutionize the home viewing experience. However, even if this Apple TV does hit the market it will probably not solve any of the cash problems that the company faces. Cramer suggests that it should take the television and home viewing innovation a step further: enter the cable providing market.
Apple, in theory, could purchase cable providing companies like Time Warner Cable, the Dish Network, or even Verizon’s Fios segment. They have enough money to purchase any of these companies with straight cash and have plenty left to spare. This could lead to a revolutionary system of a one-stop, low-cost shop for all media, technology, and communication needs a consumer could ever want.
Now, this is all speculation of course. Like it has been said before, CEO Tim Cook is no Steve Jobs. It is hard to say what kind of vision for the company that Cook has. With $137 billion in cash still in reserve, Apple has plenty of options and a lot of flexibility to do what it wants. But, until Apple shows some willingness to spend its cash and do something revolutionary, there will be rumblings from investors and analysts alike putting pressure on Apple to finally make a move towards an innovative future.
Apple shares were up $2.34, or +0.50%, during pre-market trading on Monday. The stock is down about -4% over the past twelve months.
The Bottom Line
Shares of Apple (AAPL) have a dividend yield of 2.23% based on Friday’s closing price of $474.98 and the company’s annualized dividend payout of $10.60.
Apple, Inc. (AAPL) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.
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