APPLE CASE (Ch.

8)
Dividend policy
Team 5
Hinke Kuiken
Jannik Matthiesen
Ignas Tautvydas Vėgelė
Hannia Espinosa
01 Introduction

CONTENTS
TABLE OF
02 Summary of the case

03 Traditional explanations of Apple’s dividend policy

04 Behavioral explanations of Apple’s dividend

policy

05 Analysis of Apple’s policy regarding debt, share

repurchases, and stock splits

06 Conclusion
 The company Apple
- -
One of the most famous and Apple was founded in 1976 in
influential companies in the California and the CEO is Tim
world Cook, who succeeded Steve Jobs

- -
Created a revenue of 365,8 Apple has a market capitalization
billion USD and a profits of 95 of 2.35 trillion USD, the stock
billion USD in 2021, increase price sits at 147.4€
of 65% compared to last year
02

Change in
Leadership
Tim Cook took over as CEO in
April 2011.
More systematic and analytical
Financially well managed under
Cook
New CFO
Shareholder -friendly in
respect to payouts
Dividend was raised 8%
and increase stock
repurchase program
Split stocks 7-1
case
Summary of the
The first dividend The first loss in
payment value
A quarterly dividend of $2.65 in From Sept. 2012 to Feb. 2014
2012 only returned 16.5%
Will periodically discuss updating Buy recommendations declined
its dividend to 69%
$10 billion share repurchase Less of a growth stock , and
program in 2013 more of a value stock in March
2013
Issuing debt
Continues to rise
Issues $12 billion in debt New products lead to an
One percent point above U.S. stock price increase of 4.8%
Treasury debt Revenue exceeds the
Apple bonds an attractive alternative expectations
Biggest Smartphone maker
in China in 2015
03
 explanations
Traditional
Dividend policy Traditional framework (MM)
Dictates the amount of dividends paid out by the ● Developed by Merton Miller and Franco
company to its shareholders and the frequency with Modigliani
which the dividends are paid out. (CFI, 2022)

Appropriate dividend policy (does

Basic premise
Investors are immune to framing effects, so that value
not exists)
is based on cash flows no matter how these flows are ● MInimizing payouts → trust managers
framed. (Hersh Shefrin, 2018)

Low or zero payout rates Irrelevant

● Taxes and costs are set aside
If there are tax disadvantages to dividends

04
Behavioral explanations
Quasi-hedonic editing
> More willing to take a risk when payoff is
decomposed into a prior gain
> Cash dividends → prior gain
> Capital gain → risky component
> First payout dividend before investors are
willing to sell shares
Behavioral life-cycle hypothesis
> People use frame-based rules to cope with potential
self-control problems
> Mental accounting
> Current income, liquid assets, home equity, and future
income
> Dividends = current income, capital gains = liquid
assets
> Demand for dividends to spend right away
05
Analysis of Apple’s policy regarding debt, share repurchases, and
stock splits

Debt
● Artificially inflating the value of the company
● Signaling of the company outlook and financial position

Share repurchases
● Signaling that the company is undervalued

Stock splits

● Shares look “cheaper” fitting the undervaluation narrative

● Retail can afford the stock

06
Conclusion
Findings about Apple
- Keep paying out and
increasing dividends
- Large share repurchase
programs
- Additionally a debt issue and
a stock split
About dividend
- Traditional finance -> minimize
dividends
- Dividends have a tax disadvantage
- So why still pay out dividends,
two behavioral explanations:
- Quasi-hedonic editing
- Behavioral life-cycle
hypothesis
Findings in policy
- Debt -> inflating the value and
signaling
- Share repurchases -> signaling
- Stock splits -> exploiting retail
psychology
07
THANK YOU FOR
YOUR ATTENTION!
-
 References
● Corporate Finance Institute. (2022, February 1). Dividend Policy. Retrieved October 5, 2022, from

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/dividend-policy/

● Shefrin, H. (2018). Behavioral Corporate Finance (2nd ed.). McGraw-Hill Education International

Edition.