This morning Apple (AAPL) held a conference call to announce a quarterly dividend of $2.65 per share, beginning in September 2012 quarter.
Additionally, the company announced a $10 billion share repurchase program, beginning in fiscal year 2013 and to be executed over three years. The primary purpose of share repurchases would be to neutralize the impact of dilution from future employee equity grants and employee stock purchase programs.
At the end of December 2011, Apple has about $98 billion in cash, of which about $64 billion was outside the United States. The company does not want to bring back the cash from overseas since repatriation would result in significant tax consequences.
The dividend payments would amount to about $10 billion per year. At its current share price, the yield amounts to 1.8%, which is lower compared with dividend yields of other cash rich tech companies like Microsoft (MSFT) and Intel (INTC), at 2.50% and 3.00% respectively.
While the company earns about 40% on it capital employed, it earns a meager 1% on the extra cash. It thus made a lot of sense to return a part of the cash to the shareholders.
The company last paid a quarterly dividend in 1995, prior to the return of Steve Jobs as the CEO, who did not believe that the dividend payment increased the value of the company to the shareholders. The expectations for a dividend announcement had risen substantially since Tim Cook took over as the CEO.
Apple had generated about $45 billion in free cash during the last four quarters but many analysts expect the company to earn between $50 to $80 billion in cash over the next four quarters, given the robust demand for its iPads and iPhones. That means its cash pile will continue to grow even with the new dividend and a buyback program.
What do you think of Apple’s dividend? Do you think that the company should pay a higher dividend, given the current size and continued growth of its cash pile?
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