Apple should follow Microsoft’s example and give up its “passion for dispensing huge options grants,” as well as considering the payment of dividends to investors, Alex Salkever writes in his latest
Byte of the Apple column
in Business Week Online.
The columnist says that Apple CEO Steve Jobs pleases investors on one hand with his vision and ability to keep innovative products coming. On the other hand, the CEO aggravates investors by insulating himself with an insider-friendly board of directors and hoarding a cash pile worth billions with no clear plans for acquisitions or new products.
“Some of the more outspoken Apple investors now think Jobs owes them a dividend, considering that the stock has fallen more than 50 percent since 2000,” Salkever writes. “That’s unlikely to happen. But a day of reckoning may be at hand for Jobs on another front: his penchant for rewarding himself and his executive cadres with lavish grants of unexpensed stock options. And the instigator is no less than the anti-Apple, Microsoft.”
In January, 2003, the Big M announced that it would pay its first dividend and, earlier this month, it said would stop issuing stock options and expense outstanding ones. Microsoft told investors that the results should be larger dividends in the near future. Apple needs to follow this example, Salkever writes. “If a pension fund perceives that it can get a better return at Microsoft than at Apple, either in share-price appreciation or in a dividend, it will move that money in a New York minute,” he writes.
In his column Salkever compares the benefits and drawbacks of stock options and dividends. And since Apple (and Microsoft and other tech firms) are no longer “fast growth” companies, the latter makes more sense, he opines.
“Expensing options or doing away with them isn’t enough. Apple needs to start paying a dividend, too. Jobs is sitting on $4.5 billion in cash, while Apple’s market capitalization stands at $7.6 billion,” Salkever says. “By comparison, Microsoft has cash reserves of $49 billion and a market capitalization of $289 billion.”
He concludes that Apple is on the right course for growth again, but says if the company wants to chart a path back to the US$40-a-share highs of a few years ago, it should follow Microsoft’s example. It should end options, expense existing ones, and start paying investors dividends, he adds.
“If Apple doesn’t do likewise it risks losing the confidence of long-term shareholders that it needs to support share prices and keep its access to capital markets intact,” Salkever says.