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Apple Posts Record Profits Yet Its Stock Falls

Apple announced a record quarter yesterday, breaking records in all sorts of areas yet it's stock fell by 5% in after hours trading in the US. How can this be?

It's down to the rather strange way that Apple runs its business. Despite racking up bigger and bigger profits Apple has never paid a dividend to its stock holders, allowing to stockpile a massive $75bn war chest. Enough to buy most of its competition in the smartphone, tablet and software markets outright.

If stockholders aren't seeing some return from the investment in the form of dividend what reason is there to buy it? The simple expectation that the stock will continue to rise and somebody else will pay you for the shares at a profitable rate. A gamble that is going to backfire for someone soon.

Apple is valued at around $400bn today - which isn't high given the cash held and annual profits. But unless they are expecting Apple to issue an extraordinary dividend or buy back some of its shares there is no sensible reason for institutional investors to hold Apple stock.

Hopefully your pension company isn't one of those taking the gamble...

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