Tim Cook Could Have Purchased Any of 488 S&P 500 Companies With $879 Billion. Instead, He Bought Something That Changed Apple's Fortune Forever.
Key Points
Tim Cook stepped down as Apple’s CEO on Sept. 1, having overseen a greater than 2,700% gain in his company’s shares, including dividends.
Although innovation played an important role in Apple’s success, Cook’s tenure was defined by an investment that had nothing to do with research and development.
President Trump’s flagship Tax Cuts and Jobs Act altered the landscape for corporate America and facilitated Cook’s outsize investment.
This has been a year defined by two trends: the artificial intelligence (AI) data center build-out and major transitions. Concerning the latter, we've watched Kevin Warsh be sworn in as the new head of the Federal Reserve, and witnessed the respective retirement of Berkshire Hathaway's (NYSE:BRKA)(NYSE:BRKB) Warren Buffett on Dec. 31 and Apple's (NASDAQ:AAPL) Tim Cook as CEO on Sept. 1. Both remain executive chairs of their respective boards.
Over the roughly 15 years Cook held the reins at Apple, his company's shares appreciated by approximately 2,720% (including dividends), representing a nearly 2,000-percentage-point outperformance of the benchmark S&P 500 (SNPINDEX:^GSPC). Apple also held the top spot as the world's most valuable public company for years.
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Now-former Apple CEO Tim Cook transformed his company with a nearly $879 billion investment. Image source: Official White House Photo by Daniel Torok.
While innovation has played a meaningful role in Apple's success, a strong argument can be made that the nearly $879 billion investment Cook oversaw -- that's enough money to buy 488 of the 500 companies in the S&P 500 -- is what changed Apple's fortune forever.
Apple's now-former CEO wagered on his company in a way Wall Street's never witnessed
Given the jaw-dropping capital currently being thrown at AI infrastructure, it'd be easy to assume that Cook spent a small fortune furthering Apple's AI ambitions, or perhaps funneled $879 billion into research and development (R&D). But neither R&D nor AI is the correct answer.
Cook's tenure was defined by the exorbitant amount of capital spent on repurchasing shares of Apple stock. Since the company initiated a buyback program in fiscal 2013 (Apple's fiscal year ends on the last Saturday of September each year), approximately $878.5 billion has been deployed:
- 2013: $22.95 billion in buybacks
- 2014: $45 billion
- 2015: $35.253 billion
- 2016: $29.722 billion
- 2017: $32.9 billion
- 2018: $72.738 billion
- 2019: $66.897 billion
- 2020: $72.358 billion
- 2021: $85.971 billion
- 2022: $89.402 billion
- 2023: $77.55 billion
- 2024: $94.949 billion
- 2025: $90.711 billion
- 2026: $62.094 billion (through the fiscal third quarter)
In aggregate, Cook reduced Apple's outstanding share (OS) count by 44.5%.
AAPL Shares Outstanding (Quarterly) data by YCharts
The world's largest share buyback program transformed Apple
Although Cook and Apple's board made a concerted effort to repurchase a substantial number of shares prior to 2018, President Donald Trump's Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, altered the landscape for corporate America.
Trump's flagship tax and spending law permanently lowered the peak marginal corporate income tax rate from 35% to 21%. This meant that highly profitable businesses, such as Apple, would retain more of their earnings. You'll note that once the TCJA became effective in 2018, Apple's annual share repurchases more than doubled.
The key benefit of a steady diet of share buybacks for a company with steady or growing net income is an increase in earnings per share (EPS). Apple lowering its OS by 44.5% over 13 years has had a decisively positive impact on its EPS and made the company's shares more fundamentally attractive to value- and growth-seeking investors.
Furthermore, as Warren Buffett opined, share buybacks attract long-term investors. As a company's OS declines, existing shareholders will see their ownership stakes incrementally increase. This encourages a long-term mindset that can reduce share price volatility.
Arguably, nothing Tim Cook did as CEO mattered more than overseeing the world's largest share repurchase program.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.