1. .[Apple on Monday announced a solution to an enviable problem: Too much
cash. But does giving money back to shareholders in the form of dividends make
sense? Why not hoard it?
There are several reasons Apple is giving dividends, but the primary one is that
investors feel they have a right to some of Apple's $100 billion. "People expect a
return on their investment," says Charles Elson, director of the John L. Weinberg
Center for Corporate Governance at the University of Delaware. "If you can't do
anything with the money, then you should give it back."
Elson says that Apple is not the only company to deal with this issue. At some
point, every successful public company will get pressure to give money back.
(Before the recession, Exxon Mobil, Dell and Pfizer, among others, got the same
kind of pressure from investors to give back their cash or find a way to invest it.)
In Apple's case, closing in on $100 billion seems to have triggered a call to
launch a dividend for investors, but there's usually no benchmark for such
decisions. "It's all up to the judgment of the board," says Elson.
Tim Bajarin, president of Creative Strategies, says $100 billion is way more than
Apple needs, so it doesn't make sense to keep all that money on hand. He points
out that even after the company pays out its $45 billion in dividends, Apple will
still have more than $50 billion in cash plus whatever it puts aside in the future.
"They'll always have cash for even big acquisitions if it enhances their position,"
says Bajarin, who expects Apple to start buying more companies.
During the call with analysts Monday morning, Apple CEO Tim Cook repeatedly
stressed that the dividend would also attract new investors. With a share price of
$600, drawing new shareholders doesn't seem like an issue, but Bajarin notes
that there's a type of investor that is primarily concerned with dividends. "Most of
the guys buying [Apple stock] today are buying on a holding basis," says Bajarin,
who notes that such investors believe Apple is a good long-term buy. "But there
are a lot of people who buy stock only on a monthly basis."
Another point Bajarin emphasized is that some 65% of of Apple's cash is based
outside the U.S. Merely bringing that money — now housed in foreign banks —
back to the U.S. would force Apple to lose cash in taxes and other fees. "Apple's
2. not the only one," he says. "No corporation wants to bring money back to the
U.S."
Known for its dramatic product introductions, Apple's Monday morning
announcement will probably seem ho-hum for non-investors. But, based on
Apple's stock performance Monday morning, the company has at least prompted
a squib of excitement among its intended audience: At press time, the company's
stock was up about $6 or 1% at the iDividend news.
2.
Apple on Monday announced plans for much of the $97.1 billion in cash it has
accumulated from massive iPod, iPhone, iPad and Macintosh sales.
The company said it would begin giving shareholders a quarterly dividend of $2.65
per share sometime its fiscal fourth quarter, which begins in July. Apple last offered a
dividend in 1995.
Apple (AAPL, Fortune 500) will also buy back $10 billion of its own shares over three
years, beginning in October.
"We have used some of our cash to make great investments in our business through
increased research and development, acquisitions, new retail store openings,
strategic prepayments and capital expenditures in our supply chain, and building out
our infrastructure," said Tim Cook, Apple's CEO in a statement.
"Even with these investments, we can maintain a war chest for strategic
opportunities and have plenty of cash to run our business. So we are going to initiate
a dividend and share repurchase program," he added
Stock repurchases generally help companies artificially inflate their earnings per
share because it reduces the number of shares outstanding. But profit growth has
rarely been a problem for Apple, which routinely blows past Wall Street analysts'
quarterly earnings forecasts.
Yet Apple said the share buybacks will help stave off earnings-per-share dilution
from future employee stock grants and purchase programs.
The company said it expects to utilize $45 billion of domestic cash in the first three
years of its dividend and repurchase programs.
3. Shares of Apple were up 2.4% in pre-market trading before the dividend and
buyback announcement but were halted following the news. When Apple shares
resumed trading, the stock fell more than 1%.
![.[Apple on Monday announced a solution to an enviable problem: Too much
cash. But does giving money back to shareholders in the form of dividends make
sense? Why not hoard it?
There are several reasons Apple is giving dividends, but the primary one is that
investors feel they have a right to some of Apple's $100 billion. "People expect a
return on their investment," says Charles Elson, director of the John L. Weinberg
Center for Corporate Governance at the University of Delaware. "If you can't do
anything with the money, then you should give it back."
Elson says that Apple is not the only company to deal with this issue. At some
point, every successful public company will get pressure to give money back.
(Before the recession, Exxon Mobil, Dell and Pfizer, among others, got the same
kind of pressure from investors to give back their cash or find a way to invest it.)
In Apple's case, closing in on $100 billion seems to have triggered a call to
launch a dividend for investors, but there's usually no benchmark for such
decisions. "It's all up to the judgment of the board," says Elson.
Tim Bajarin, president of Creative Strategies, says $100 billion is way more than
Apple needs, so it doesn't make sense to keep all that money on hand. He points
out that even after the company pays out its $45 billion in dividends, Apple will
still have more than $50 billion in cash plus whatever it puts aside in the future.
"They'll always have cash for even big acquisitions if it enhances their position,"
says Bajarin, who expects Apple to start buying more companies.
During the call with analysts Monday morning, Apple CEO Tim Cook repeatedly
stressed that the dividend would also attract new investors. With a share price of
$600, drawing new shareholders doesn't seem like an issue, but Bajarin notes
that there's a type of investor that is primarily concerned with dividends. "Most of
the guys buying [Apple stock] today are buying on a holding basis," says Bajarin,
who notes that such investors believe Apple is a good long-term buy. "But there
are a lot of people who buy stock only on a monthly basis."
Another point Bajarin emphasized is that some 65% of of Apple's cash is based
outside the U.S. Merely bringing that money — now housed in foreign banks —
back to the U.S. would force Apple to lose cash in taxes and other fees. "Apple's](https://image.slidesharecdn.com/apple-130427063715-phpapp01/85/Apple-1-320.jpg)
