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Apple to spend $45B of cash horde on dividends, stock buy-back

Strongest signal yet that the guard has changed at Apple, says analyst

Apple Monday announced it would begin paying quarterly stock dividends, and later this year, will begin to buy back shares of its stock.

The moves were the strongest signal yet that a new regime is in charge. "This shows that there's been a changing of the guard," said Brian Marshall of International Strategy & Investment Group (ISI) in an interview Monday. Tim Cook took over as CEO last August just weeks before co-founder Steve Jobs died after a long battle with pancreatic cancer. Jobs had opposed paying dividends or repurchasing shares.

Both the dividend and stock repurchasing programs were anticipated by analysts after Apple issued an unusual media alert on Sunday, when the company said Cook and chief financial officer Peter Oppenheimer would reveal the outcome of internal discussions about what to do with the firm's $98 billion cash balance.

In today's conference call with Wall Street analysts, Cook said that Apple would begin paying quarterly dividends of $2.65 per share starting in the third calendar quarter, which ends Sept. 30, 2012. In the first year of the dividend deal, Apple will hand out just under $10 billion.

The dividend works out to $10.60 per share annually, for a yield of 1.8% at the stock's current share price. That is less than some expected.

In a note to clients yesterday, Marshall predicted that Apple would deliver a dividend of $3.66 per share per quarter, or $14.65 annually, for a yield of 2.5%.

Apple's dividend yield puts it behind Microsoft, Intel and Hewlett-Packard, which pay out 2.45%, 3% and 2%, respectively, but ahead of other technology companies such as IBM and Oracle.

The stock repurchasing plan, meanwhile, will kick off in the fourth quarter, which ends Dec. 31, the first in Apple's 2013 fiscal year. Over a three-year period, Apple plans to spend approximately $10 billion to buy shares on the open market.

"[Stock repurchases] are another way to give money back to shareholders," said Marshall.

According to Oppenheimer, Apple will front-load the stock repurchasing program, spending about $4 billion in the first fiscal year.

Altogether, Apple plans to lay out about $45 billion for the two programs over the next three years.

Investors and Wall Street analysts have long called for Apple to reduce its cash stockpile, either by issuing dividends to regularly reward shareholders, or by repurchasing stock, which increases the earnings per share.

"Combined, I think this is fine," said Marshall when asked today about the difference between Apple's planned dividend and his speculation on Sunday. "Most people wanted a bigger dividend, but when they're lumped together, it comes out about the same [as the 2.5% yield]."

The money will come from the $34 billion that Apple currently holds in the U.S. The majority of the company's liquid assets are held overseas. but repatriating those funds would incur a heavy tax penalty.

Cook assured Wall Street that the money spent on dividends and stock buy-backs would not affect the company's business or limit its options.

"We will continue to invest in the business. These decisions will not close any doors." Cook said.

"We will still have plenty of cash to run the business," added Oppenheimer.

Marshall agreed. "They'll be able to fund this without even denting the balance sheet," he said.

Although Apple had said yesterday that it would not discuss any topics other than its cash balance, some Wall Street analysts asked non-cash questions anyway.

Cook bit on one.

"We had a record weekend," said Cook when asked about sales of the new iPad , which hit retail last Friday.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer , or subscribe to Gregg's RSS feed . His e-mail address is [email protected] .

Read more about it industry in Computerworld's IT Industry Topic Center.


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