Apple and Dividends: WWJD?
Mar 1, 2012 10:21 AM PT
Apple is likely planning on tapping its nearly US$100 billion piggy bank to pay investors a dividend, according to information compiled by Bloomberg.
The company is enjoying a strong start to 2012, reporting record earnings and sales at the end of January and recently topping a $500 billion market capitalization. With that success has come pressure to return some of that cash to investors.
The report from Bloomberg estimates that sometime in 2012, the electronics giant will announce a quarterly dividend of about $2 per AAPL share, costing the company about $7.46 billion per year.
"A $2 quarterly dividend is about a 1.5 percent dividend yield, so it's within range of companies like Microsoft, HP or IBM," Yaniv Grinstein, professor of finance at Cornell University, told MacNewsWorld.
Bloomberg calculated the $2 amount based on past dividends from those companies, Apple's current balance sheet and estimates about its revenue stream going forward. The company brought in $16 billion during the first fiscal quarter of 2012, and Bloomberg spoke to analysts that expected Apple to make another $75 billion by the end of the year.
Since much of its cash is in offshore accounts, the company could face high international tax rates if it decided to repatriate the money for a payout, further complicating the dividend question.
Apple didn't respond to our request for comment.
Putting Options on the Table
At the company's shareholders meeting last week, CEO Tim Cook said the cash was "more than we need to run the company" and acknowledged that a dividend option was part of Apple's ongoing internal discussion about what do do with its massive money hoard. It's possible that Apple won't serve up a traditional dividend.
"There are several possibilities for a dividend," Hendi Susanto, analyst at Gabelli, told MacNewsWorld. "If they do something, it might not be regular. They could do a special, one-time dividend, or introduce a share plan."
A dividend that doesn't follow typical payout patterns could help Apple keep overseas tax rates low, and it would keep in line with Apple's penchant to resist investor pressure.
"Whatever they do, they're getting increased pressure from investors on what to do with the large amounts of cash, and while a dividend isn't the only option, they're going to have to address this," said Susanto.
Jobs, Dividends and Priorities
Apple's last dividend came in 1995, during Steve Jobs' absence from the company. Once he returned, he ushered in a dramatic turnaround for Apple, but offering shareholders dividends wasn't a part of the plan. Since he officially took the CEO office last year, Cook has been more open to putting different options on the table in regard to investors.
"Apple has really changed its tone now when it talks with investors or the board about cash discussions," said Susanto.
Jobs seemed to be more concerned with making sure the company had a buffer should economic conditions or unforeseen circumstances send sales tumbling.
"Jobs was thinking 10 steps ahead," Trip Chowdhry, senior analyst for Global Equities Research, told MacNewsWorld. "He had gone through the life cycle of a company where a few mistakes, things go wrong, and all of a sudden the stock is worth nothing, and he always wanted to have a cushion in place. He understood that anything could happen with a product failure, anything could happen with the supply chain or with China, and by keeping cash in place he was making sure Apple was ready for anything."
If Apple wants to keep its momentum going, Chowdhry said, it needs to keep its cofounder's priorities in mind -- which doesn't necessarily mean putting the cash into the hands of investors.
"If Apple's management is prudent, their focus should be employees first, customers second and investors last," said Chowdhry. "If employees are happy, they'll create the best products, and those will delight the customers. If customers are buying, there's revenue, and shareholders are happy. But if shareholders come first, Apple is going to go the way it went before Steve Jobs left and then came back."