Apple Inc.’s (AAPL) decision earlier this year to splurge its huge cash windfall on buying back its own shares has come back to haunt it.
Like much of corporate America, the iPhone maker celebrated the Republicans' tax cut by spending record amounts on stock repurchases. Unfortunately, for Apple and its peers, those purchases were made during the height of the bull market and before the market crashed.
Apple spent nearly $62.9 billion on buybacks in the first nine months of 2018, making it one of the biggest repurchasers in the market. Fast forward to the end of the year and those same shares are now worth just $54 billion, The Wall Street Journal reported, representing a loss of roughly $9 billion, based on the company's Thursday afternoon share price of $151.
According to security filings, Apple paid as high as $222 a share to buy back its own stock, close to its Oct. 3 peak of $232.
Industry insiders told the newspaper that Apple’s mistimed stock repurchases served as an important reminder that the iPhone maker made a mistake investing its tax savings in buybacks. They argued the company should have used the money to reinvest in its business, raise employee pay or to bankroll higher dividends.
“If they made an acquisition that decreased in value this much, people would be up in arms,” said Nell Minow, vice chairwoman of ValueEdge Advisors, a corporate-governance consulting firm. “They have one job, and that is to make good use of capital.”
Stock buybacks have overtaken dividends as the most popular way for corporate America to reward investors since Ronald Reagan’s Securities and Exchange Commission lifted a ban on them in 1982.
Companies typically buy back their stock when they view it as undervalued. Among other things, repurchases serve to boost the value of companies by reducing the number of shares outstanding on the market.
Critics have described this process as a deceptive way to artificially lift valuations and reward executives, many of which are compensated when they hit certain share price targets.