Apple confirms dividend, buyback
Investors push stock to new high
NEW YORK | Apple is finally acknowledging that it has more money than it needs. But don’t expect the high-tech market leader to cut prices on iphones and ipads. Instead, the company said on Monday that it will reward its shareholders with a dividend and a share buyback program.
Apple, the world’s most valuable company, sits on $97.6 billion in cash and securities. The decision to return some of that money to investors is a clear signal that Apple is taking a different approach in the post-jobs era.
Former CEO Steve Jobs, who died in October after a long battle with cancer, resisted calls to issue dividends for years. He argued that the money was better used to give Apple maneuvering room to, for instance, make strategic acquisitions. Apple did pay a quarterly dividend between 1987 and 1995, but Jobs was not involved with the company at the time.
On Monday, new CEO Tim Cook said that, with as much cash as Apple has on hand, a dividend won’t restrain the company’s options.
“These decisions will not close any doors for us,” he told analysts and reporters on a conference call.
Had it kept amassing cash and low-yielding securities, Apple eventually could have opened itself to a legal challenge from shareholders, who could have argued that it was misusing their money.
Even with a recent surge in anticipation of the buyback, the news helped send Apple’s stock up $15.53 on the Nasdaq exchange Monday, closing at a record $601.10.
Apple said that it will pay a quarterly dividend of $2.65 per share, starting in its fiscal fourth quarter, which begins July 1.
The dividend works out to $10.60 annually, or 1.8 percent of the current stock price. Analyst Tavis Mccourt at Morgan Keegan said the dividend is relatively generous for a large technology company. However, Microsoft Corp., pays 2.5 percent of its stock price in dividends, and Hewlett-packard Co. pays 2 percent.
In absolute terms, Apple will pay one of the richest dividends in the U.S. It will spend more than $10 billion on dividends in its first year, placing it just below companies including AT&T Inc. and Verizon Communications Inc., which use dividends as their main way to attract investors.
Apple generated $31 billion in cash in the fiscal year that ended in September, and is on pace to generate even more in the current year. That means its cash pile will continue to grow even with a dividend and a buyback program, albeit at a lower rate.
The dividend opens up ownership of Apple shares to a wider range of stock mutual funds, potentially boosting the stock price in the long term. Many “value-oriented” funds are not allowed to buy stocks that don’t pay dividends.
Apple said the $10 billion share buyback program will begin next fiscal year, which starts Sept. 30, and run for three years.
Investors had been expecting the announcement, driving Apple’s stock up 37 percent since management hinted in January that a dividend was in the works.
Buybacks are a popular alternative to dividends, since they reduce the number of shares outstanding. That means every remaining investor has title to a larger share of the company.
Mr. Cook suggested that the dividend could have been larger if U.S. tax laws were different. He told reporters that, as Apple analyzed how much it could give out to shareholders, it looked solely at the cash it has in the U.S. Like many big exporters, Apple has much of its cash overseas some $64 billion, specifically.
Apple is reluctant to bring back overseas profits. In addition to being taxed in their respective countries, those profits would be subject to the 35 percent U.S. corporate tax rate.
Mr. Cook said Apple looked at how much domestic cash it had, then set aside enough for planned investments and unforeseen outlays. What was left over would be given out to shareholders, he said.
That suggests that if Apple could bring back its $64 billion in overseas money, the rewards to shareholders could be larger. Corporations have been clamoring for a change in tax laws, or a repeat of a 2004 temporary tax amnesty on repatriated earnings. has dismissed a shareholder lawsuit alleging that billionaire Warren Buffett and directors of Berkshire Hathaway Inc. failed to take proper action in response to stock trades by former Berkshire executive David Sokol before the company’s $9 billion acquisition of chemical manufacturer Lubrizol.
The judge ruled Monday that the shareholders failed to demonstrate before filing their lawsuit, as required by Delaware law, that the Berkshire board was not capable or willing to take legal action itself.
But the judge dismissed the case without prejudice, meaning the plaintiffs might be able file a complaint later if circumstances warrant.
The derivative lawsuit sought damages on behalf of Berkshire from Mr. Sokol and the company’s directors, and surrender by Mr. Sokol of some $3 million in profit he realized in the Lubrizol takeover.
Apple CEO Tim Cook said that, with as much cash as Apple has on hand, a dividend won’t restrain the company’s options. “These decisions will not close any doors for us,” he said. Mr. Cook said Apple looked at how much domestic cash it had, then set aside enough for planned investments and unforeseen outlays.
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