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A whopping US$750 billion is set to be part of Apple’s capital return program to its shareholders.

With so much cash, Apple shareholders can have their cake and eat it too, said Gary Morton.

A proposal for a 50% increase in dividend (2018) and 15% annual increases over the planning horizon went viral.

It was seen as the most controversial among the proposals made by the analyst in Seeking Alpha.

In short, this will be the largest return of capital in history is coming to Apple shareholders, says Morton.
Many believe Apple’s dividends should only rise slowly with most of the funds going into share repurchases.

Others recommend massive dividends or even special dividends. But a balanced approach actually maximizes the benefits for the buyback advocates and for dividend enthusiasts.

The question asked by the writer is: How should Apple return US$750 billion?

Among the proposals on how would Apple do that are buybacks vs dividends. Buyback enthusiast’s advocates for the funneling of the vast majority of the cash into buybacks.

The writer propsed a balanced approach in his model (large buyback and substantial dividend increases) which he said meets every shareholder’s needs better than a low dividend, spruced up buyback approach.

Balance is Best

“Abias toward greater buybacks is usually not more beneficial for generating long term shareholder value. Paying dividends allows shareholders to decide on the use of their cash.

“Those who want long term appreciation can reinvest and, in most situations, gain a slightly greater return than if the company repurchased shares.

“This is true even after paying taxes on the dividends. Other arguments for over-emphasizing buybacks over dividends generally fail against the dividend reinvestment option. There are also legal and practical limits to consider with large share repurchases,” wrote Morton.

However, says Morton, the benefit of dividends over buybacks has limits as well.
Inconsistent or declining dividends blow up the valuation models and similarly turn the tables on buyback vs dividend analyses.