Apple announced on Monday that it would pay a stock dividend of $2.65 a share in the fourth quarter and its board authorised a $10 billion share buyback, two moves that will use up some of its cash hoard of nearly $100 billion to reward investors.
The company issued an unusual media alert yesterday evening saying it planned to announce the long-awaited outcome to a discussion by its board about what to do with its cash balance. Its stock was halted from trading this morning.
Apple, which recently released the newest version of its iPad, was widely expected to announce a dividend. As its cash has piled up, Wall Street analysts and investors had begun to call more loudly for Apple to return some of it to shareholders. Although having too much cash is rarely seen as a burden for a company, Apple earns less than one per cent in interest on the cash, which many investors view as wasteful.
Until recently, Apple had resisted pressure to issue a dividend, a practice often associated with mature companies that have settled into slower rates of sales and earnings growth.
While it is more than three and a half decades old, Apple has been on a growth spurt that is highly unusual for a company of its age. The success of new products like the iPhone and iPad has propelled both revenue and profits; during the holiday quarter, for example, the company more than doubled its profit from the same period in the prior year.
| SHARE IN APPLE’S PIE |
| * The maker of iPhone, iPad and iPod has $98 billion in cash and securities, which is equal to about $104 a share |
| * Company’s market value is $545.97 billion, based on closing price of $585.57 on March 16 |
| * Investors to get a quarterly dividend of $2.65 a share beginning July 1 |
| * To buy back up to $10 billion of its stock starting in fiscal 2013 |
| * Says it anticipates using around $45 billion of domestic cash in the first 3 years of its buyback and dividend programmes |
| * Apple generated $16 billion in Q1 of fiscal 2012 |
Apple issued shareholder dividends earlier in its history, stopping in December 1995.
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Since Apple’s current chief executive, Timothy D Cook, took over last fall, he and other executives have signaled their willingness to consider a plan for the company’s cash other than letting it accumulate. For months, Apple executives have said they were in discussions with the company’s board members about developing such a plan.
A M Sacconaghi Jr, an analyst with Bernstein Research, said before the announcement that one challenge Apple faced was that its stock had appreciated so much that some growth fund managers were bumping into limits on how concentrated their funds can be in any single stock.
Sacconaghi said that issuing a dividend could help Apple appeal to new types of value investors. He said that a recent increase in Apple shares had partly been caused by more of those value investors’ buying the stock in anticipation of a dividend.
“It will attract a broader class of investor,” he said.
Apple could also have announced other plans for its cash, including an acquisition of another company, though Apple has never made a multibillion-dollar acquisition.
While Apple ended last year with a cash balance of $97.6 billion, it cannot easily gain access to most of that for a dividend because roughly 66 per cent of the money is held by its foreign subsidiaries. To bring that cash back to the United States, Apple would have to pay hefty repatriation taxes, very likely more than 30 per cent.
That leaves it with about $34 billion in cash in the United States. In a recent report, Sacconaghi estimated that Apple could issue a 2.5 per cent annual dividend to shareholders without touching its cash in the United States, financing the payout entirely from new cash it generates from its business operations. At Apple’s share price of $585.57, that would amount to a dividend of $14.64 a year for every share.
© 2012 The New York Times News Service