Apple's Buyback Program May Mean a Higher Dividend

NEW YORK (TheStreet) -- Apple's (AAPL) share-buyback program is becoming increasingly difficult for the market to ignore. The company accelerated the pace and aggressiveness lately, albeit not to the degree desired by hedge fund manager Carl Icahn.

The iPhone maker has removed over $40 billion worth of shares from the float during the last year, including about $14 billion since the start of 2014.

I have mixed feelings about CEO Tim Cook's focus on the daily share price. Wall Street is far from perfect, but it is the most efficient stock pricing mechanism known. Cook needs to worry about creating and producing the next iHit product that people will stand in line overnight in the cold for -- just to get a chance to wrap their hands around an expensive, um, premium-priced iGizmo.

Cook was quoted in the Wall Street Journal as stating he was "surprised" by the market's reaction to lower iPhone sales and revenue estimates. Cook may want to be opportunistic and buy when shares are cheap, but how does he know they won't become cheaper? He doesn't, and because his card says CEO of Apple, not CEO of a hedge fund, he shouldn't partake in market timing.

That doesn't mean he should follow the marching orders of Carl Icahn, but he should remain focused at the job he collects his paycheck and stock options for. For about half the money, Apple could have bought Yahoo! (YHOO)

Buying Yahoo! makes sense for more than just Apple, but from Apple's point of view, it's more attractive than buying its own shares and would cost less. I first presented my idea in Why Apple Should Buy Yahoo! back in October.

There are silver linings from Apple's buying its own shares instead of Yahoo!'s. A reduction in supply tends to make anything more valuable, and Apple isn't an exception. Fewer shares to pay a dividend on results in a lower total cost of declaring dividends and subsequently enables a company to increase its dividend.

For the stated reasons, many investors love it and will buy more shares. Overall, I don't believe share buybacks are advantageous for shareholders of most stocks, but if the conditions are right, a buyback can make sense.

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