Ap­ple con­firms div­i­dend, buy­back

In­vestors push stock to new high

The Washington Times Daily - - Business - BY PETER SVENS­SON

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.

AS­SO­CI­ATED PRESS

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.

Wendy’s has sur­passed Burger King as the sec­ond­biggest ham­burger chain in the U.S. Both res­tau­rant brands are rein­vent­ing them­selves while strug­gling to keep up with the growth of Mcdon­ald’s.

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