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Apple begins sharing 98 billion (USD) cache

posted 19 Mar 2012, 12:13 by Mpelembe   [ updated 19 Mar 2012, 12:15 ]

Apple fulfills a longstanding desire of investors by initiating a quarterly dividend and share buyback that will pay out $45 billion (USD) over three years.

NEW YORK CITY, NEW YORK, UNITED STATES (REUTERS - Apple Inc. CEO Tim Cook, moving swiftly after taking over from the late Silicon Valley icon Steve Jobs, fulfilled a longstanding desire of investors by initiating a quarterly dividend and share buyback that will pay out $45 billion (USD) over three years.

The world's most valuable technology company will start paying its first dividends since 1995 -- a regular quarterly payout of $2.65 a share -- in July, and buy back up to $10 billion of its stock beginning in the next fiscal year.

The $10 billion annual dividend program, which Cook said will be reviewed periodically, ranks among the largest current U.S. corporate cash payouts. But he told analysts on Monday that "making great products" remained Apple's top priority, echoing the sentiments of his former boss, who died in October after a years-long battle with cancer.

Riding the impact of the announcement, Apple shares were up 2.3 percent at $598.99 at midday.

Michael A. Gayed, the Chief Investment Strategist at Pension Partners, LLC, an investment management firm, explained that Apple was under a lot of pressure from shareholders to take these steps.

"They've had a humungous cash hoard for the past several years as iPad sales have increased and more and more discretionary money goes towards Apple products," said Gayed.

"While they are initiating a dividend, in reality it's not going to suck out that much cash from the balance sheet. If anything what it will likely do is bring in a certain class of investors now who are actually looking for dividends from their holdings," he added.

Apple expects the share buyback program to run over three years, with the primary objective to offset the impact of employee stock options and equity grants.

Its annual dividend yield will come in around 1.8 percent. That ranks above Oracle Corp and International Business Machines Corp but falls just short of the average of around 2.4 percent for companies in the Standard & Poor's 500 index, analysts say.

"In general tech companies when they initiate dividends, is not really seen as a positive because the implication is -- well, then they can't find other growth opportunities and technology as a sector tends to be a growth sector. So we'll have to see what the longer term implication of this is. I think it's just a function of the perhaps maturity that Apple is going through at this point," said Gayed.

The maker of the iPhone, iPad and iPod has $98 billion in cash and securities, equal to about $104 a share, according to ISI Group analyst Brian Marshall.

The company said it anticipated using about $45 billion of domestic cash in the first three years of its buyback and dividend programs.

When Cook was announced as CEO, many on Wall Street worried he lacked Jobs' vision for devising groundbreaking consumer electronics. But Apple's shares have gained more than 50 percent since Jobs' death and set a record above $600 last week.

Cook oversaw the rollout of the iPhone 4S last year and presided over what he said on Monday was a "record weekend" of sales for the new, 4G-enabled iPad. But many investors are still waiting to see an Apple TV or something similar: a gadget that will transform the industry the way the iPod and iPhone did.