Draining Apple's Bulging Bags of Mad Money
Mar 21, 2012 5:00 AM PT
Apple recently gave investors what some had been demanding for months, if not years: a dividend on their shares.
The company promised to initiate a quarterly dividend of US$2.65 per share, beginning in the fourth quarter of its fiscal 2012, which starts in July.
Apple will also start a $10 billion share repurchase program. It expects it will carry on over three years, beginning in the company's fiscal 2013, which starts at the end of September of this year.
Earlier in the year, Apple revealed it was sitting on a cash pile of around $100 billion and hinted it would have to come up with a way to spend that money. Until recently, though, it was uncertain whether the company would turn to a dividend. During the tenure of cofounder and former CEO Steve Jobs, the company never issued a dividend. Also, much of Apple's cash is in foreign accounts that carry high tax burdens if the company opted repatriate the money they contain.
Still, investors made it known that they hoped they would receive some kind of payback from Apple's success.
"In general, institutional investors will pressure companies to pay out excess cash to shareholders so that there is less chance that the cash will be wasted on projects that are less beneficial to shareholders," Dave Denis, professor of business administration at the University of Pittsburgh graduate school of business, told MacNewsWorld.
With Tim Cook in charge and record high sales in the tablet and mobile phone industries, though, Apple opted for the dividend despite its late cofounder's aversion to the practice.
"It's impossible to say what Jobs would have done, but historically, he appears to have been more resistant to paying dividends to shareholders," said Denis "He remembered that cash flows in the high-tech industry are quite volatile, and therefore was more fearful that Apple's cash balance could quickly erode."
The change in position is probably largely due to Apple's remarkable recent string of successes, Denis said.
"Apple's current cash balance has grown sufficiently high that most analysts seem to place a low probability on the cash balance falling to an unsafe level in the foreseeable future," he explained.
Thumbs Up From the Market
The move made Wall Street smile. For the first time ever, Apple stock closed at more than $600 on Monday, reaching $601.10 at the end of trading. The uptick continued on Tuesday, with the stock flying as high as $606.90 before closing at $605.96.
"Apple stock price rose on Monday relative to the market, suggesting that the $2.65 dividend conveyed positive information to the market regarding Apple's confidence about its future profitability and its ability to maintain high levels of payout in the long run," Yaniv Grinstein, professor of finance at Cornell University, told MacNewsWorld.
Investors had been bringing up the dividend option to Apple in recent shareholder meetings and calls.
"Some investors might hope that the payout would be even larger, but I don't think many -- if any -- will be disappointed that Apple is initiating this payout," Denis said.
iPad on Fire
As it was giving investors a promise of a payout, Apple also began selling its latest iPad. The company claimed it sold 3 million of the tablets during the device's first weekend of availability.
When the company introduce the original iPad in 2010, it sold 300,000 on the first day in the U.S. The company didn't release first-day sales for the second launch, but it sold 4.6 million total tablets in the first quarter after it was released.
The Friday launch made the newest version available in the U.S., Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore, Switzerland, the UK and the U.S. Virgin Islands. It will be available in an additional 24 countries this Friday.
The tablet has proven to be a hot item in multiple respects. One widely reported complaint about the device, besides having to wait in line to get one, is that the tablet can grow significantly hot during operation.
Apple didn't respond to our requests for comment.