Apple Announces $2.65 Stock Dividend & Stock Buyback [Update]

| Apple Stock Watch

Apple announced a shareholder dividend and stock buyback program on Monday, ending years of speculation on what the company would do with its ever-growing cash hoard. The company announced just ahead of a press conference for the plan that it will initiate a US$2.65 per share quarterly dividend and a $10 billion share repurchase program.

Apple to pay shareholder dividendThe dividend will begin “sometime in the fourth quarter of its fiscal 2012, which begins on July 1, 2012,” while the share repurchase plan will begin in fiscal 2013, which begins this year on September 30th, 2012.

The buyback program is expected to take place over three years, and Apple said that its chief purchase was to simply neutralize, “the impact of dilution from future employee equity grants and employee stock purchase programs.”

“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future,” Tim Cook, Apple’s CEO, said in a statement. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program.”

“Combining dividends, share repurchases, and cash used to net-share-settle vesting RSUs, we anticipate utilizing approximately $45 billion of domestic cash in the first three years of our programs,” Peter Oppenheimer, Apple’s CFO, said. “We are extremely confident in our future and see tremendous opportunities ahead.”

At today’s share price, Apple’s buyback program would eliminate some 17.1 million shares from the open market. The realistic number of shares will be lower, however, with the assumption that the company’s stock price will continue to rise. $10 billion just doesn’t go as far as you think it will.

With Apple’s plan that these shares will neutralize stock option grants and other stock-based incentives, it isn’t likely to have a significant impact on AAPL’s share price.

Apple currently has 932.4 million shares outstanding. With a dividend of $2.65 per share, the company is planning on paying out some $2.47 billion per quarter to shareholders.

Check out our live coverage of Apple’s press conference for more information.

[Update: Article updated with additional information and details. - Editor]

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

Bryan Chaffin

I humbly await all those who said I was wrong with my analysis that Apple would pay a dividend to submit their mea culpas. smile

akcarver

The market is reacting very favorably to the news, with AAPL already up over $9, in just forty minutes. I predict a huge jump by EOD, perhaps over $30. I really REALLY wish I’d had $350,000 in 1997. I’d be getting over a million a year in dividend payments alone, and the stock value itself would be almost $60 million.

skipaq

Bryan, no apology from me as I was with you on this one. Although I thought the dividend would be a little over $3 a share. I see the share buy back as a good thing as well. It also seems like Apple’s cash pile will still keep growing after this begins.

jfbiii

Seems like a reasonable proposal.

geoduck

Woo Hoo! $2.65/share dividend. That means on the Apple stock I own I’ll be getting….

Oh, right :(

FlipFriddle

Nice - I can buy my wife dinner quarterly on Apple’s dime. smile

cb50dc

geoduck and FlipFriddle, let’s all go out together! I’ll get a dividend on BOTH of my shares!

NEALC5

Great! That means Apple just bought me a new iPad!

Bosco (Brad Hutchings)

The share buyback is a token effort targeted at future equity compensation for employees. That’s a good thing. It’s just 2% give or take. If they’d have done anything serious on that, it would have been an indication that they are out of ideas of how to invest their cash.

Lee Dronick

I humbly await all those who said I was wrong with my analysis that Apple would pay a dividend to submit their mea culpas.

Nolo contendere

I would have preferred that they bought Adobe and cleaned up Creative Suite. However, the dividend will be welcome.

Lee Dronick

Great! That means Apple just bought me a new iPad!

You bought yourself an iPad with your smart investment choice. smile

FlipFriddle

geoduck and FlipFriddle, let?s all go out together! I?ll get a dividend on BOTH of my shares!

It’s a date! You guys want to come to Rochester? smile It’s 75 and sunny right now!

geoduck

It?s a date! You guys want to come to Rochester?  It?s 75 and sunny right now!

But Nanaimo BC is so pretty this time of year.

Lee Dronick

FlipFriddle said:

It?s a date! You guys want to come to Rochester?? It?s 75 and sunny right now!

But Nanaimo BC is so pretty this time of year.

Yes, but here in San Diego the highways east of town were closed due to snow. smile

BurmaYank

Bryan, my thoughts and feelings about how shortsightedly stupid, self-destructive and utterly useless it probably is for Apple to be doing things that might increase the diversity of Apple’s shareholders, and especially to allow big market funds at last to invest in Apple (and thus to reduce the power of Apple’s management to determine company policies), such as finally offering dividends, have not changed.  I never said Apple would or would not do this - only that it should not issue dividends - so I’ve nothing to apologize for.

I could not have expressed my opinion about this better than TMO commenter aryugaetu did when he posted to Jeff’s article, today:

(“Analyst: Apple Dividend Makes Good Sense”), “Sterne Agee analyst Shaw Wu thinks the plan is a good idea?”:

?We believe paying a dividend makes a lot of sense for both shareholders and employees given the company?s high profitability and strong ability to generate free cash flow,? Mr. Wu said…

?We estimate that AAPL will likely generate $75-80 billion in free cash in the next four quarters versus the $45.3 billion we estimate the company generated in the previous four quarters,? Mr. Wu said. ?And that?s why we estimate and believe paying a dividend yield in the 2-2.5 percent range makes sense.?

He added, ?The other reason to pay a dividend is that a growing number of funds are focused on delivering yields and stocks that pay dividends. We believe this would expand and stabilize Apple?s shareholder base.?

.

“That?s total BS. He never explained what Apple gets out of it - just a bunch of happier investors. That?s hard to believe. Apple?s stock is still skyrocketing, a very attractive investment that produces its own rewards, so there is no reason to give away the cash on hand. Dividends are merely bribes to investors to buy their company?s stagnant stock. It is much more typical of slow-growth companies.

Steve Jobs was a very savvy businessman, breaking many firmly held business myths. Now, this new move is based on a bunch of old-school directors playing it safe, unwilling to ?Think Different?. Without recent innovative ideas and products, this move brings a huge shift in Apple?s business focus; not too different when Balmer started to run Microsoft.

Investors that love leading-edge companies will be selling their shares based on the fear of Apple?s own people believing there is nothing more.

Putting business and finance leads at the top of a company, with the innovativeness of lobotomized lemmings, is the surest way to induce an company?s agonizing death.”

.
Apple obviously has no need at all to increase its cash flow capabilities, so why on earth should it think it makes any sense, as Shaw Wu claimed it somehow does, for Apple to try to make itself more attractive to investors?!

BurmaYank

“Now, this new move is based on a bunch of old-school directors playing it safe, unwilling to ‘Think Different’ ...this move brings a huge shift in Apple?s business focus; not too different when Balmer started to run Microsoft.”

Heaven forfend!

BurmaYank

Apple should have kept Apple stock prices as low as possible, by not issuing dividends, and invested its excess cash in:

- developing new manufacturing processes
a) which utilize interchangeable manufacturing modules which can be quickly inserted or replaced into totally automated assembly lines, to maximize flexibility, speed, precision, reliability, etc., in greatly accelerated “just-in-time” production,
b) which can be designed to rapidly create other bespoke/one-of-a-kind interchangeable manufacturing modules as needed, designed by intelligent software,
c) which might require only human employees in the hundreds (if even that) for operations as big as Foxconn’s,
d) which are therefore all only within US shores, and
e) which utilize only free energy sources (geothermal, wave/tidal power, sun, wind, etc.) and fuel-cell, battery or flywheel energy storage forms.

- and any left-over excess money after that could be used to buy back Apple stock at the reduced rates of a company which refuses to issue dividends can enjoy.

Bryan Chaffin

BurmaYank (and I wasn’t trying to single you out, mate! Several people said I was wrong or otherwise argued against my analysis), I can’t help but think you’re basing your thoughts on this on comments made by Steve Jobs when Apple had less than half the cash it has today.

We don’t know what Steve would say today. He died after leaving the company in the hands of his hand picked successor, the same man who led the board to the decision announced today. For all we know, Steve advised Tim to keep Apple’s cash until it hit $100 billion, and this was all a part of his plan.

With the plan announced today, Apple will pay its dividend and still grow its cash hoard, a cash hoard that was already bigger than Apple could ever spend.

Everything you want Apple to invest in, it can still invest in, and then some.

Apple should have kept Apple stock prices as low as possible.

In addition to that being a breach of fiduciary responsibility, it runs completely contrary to what is good for Apple in terms of motivating its execs and employees.

Today’s actions will lead to a higher stock price without compromising anything?at all?and that benefits everyone.

BurmaYank

“Today?s actions will lead to a higher stock price without compromising anything?at all?and that benefits everyone.”

Bryan, I hope you’re more correct than me about this, but here is what seems to me may be significantly harmful to Apple’s best interest in today?s actions:

To the extent that increasing the diversity of Apple?s shareholders, by finally allowing investment in Apple by those previously-excluded huge market funds which are prohibited from investing in corporations which do not give dividends, to that extent, I’d expect to see the power of Apple?s management to determine company policies and philosophies becoming undermined and reduced, and being replaced by those of the shareholders, to the detriment of Apple’s widget. 

”... I can?t help but think you?re basing your thoughts on this on comments made by Steve Jobs when Apple had less than half the cash it has today.
We don?t know what Steve would say today… For all we know, Steve advised Tim to keep Apple?s cash until it hit $100 billion, and this was all a part of his plan.”

Despite what you seem to find inferable from what I’ve said, I have not thought that Apple should keep a cash nest egg beyond what it might need to avoid having to borrow for any need, to avoid take-over threats or to permit major investments deemed desirable - which I’d guess should reasonably be less than, say, $50B max.

On the contrary, I have previously said that I see Apple’s huge cash excesses as a serious problem for Apple. In fact, the only reason I’ve argued that Apple should not spend any of its recent cash excess to pay dividends is (as I said above) because I think that Apple needs to avoid diversifying its shareholders in order to avoid undermining and reducing Apple?s management’s power to determine company policies without interference from WallStreet nonsense.

BurmaYank said, ‘Apple should have kept Apple stock prices as low as possible.’

In addition to that being a breach of fiduciary responsibility, it runs completely contrary to what is good for Apple in terms of motivating its execs and employees.”

I do recognize your excellent point about Apple having a fiduciary responsibility to maximize the value of the shareholder’s investment, and I also recognize that yours is the standard interpretation of how that responsibility should be seen as conflicting with an Apple decision against trying to increase the price of its stock and/or pay dividends with excess profits). 

However, I think an alternative argument probably could have legal merit which interprets “the value of the shareholder’s investment” in ways that are not just based the cash value of the stock.  I think there might be some real non-monetary values in Apple stock which arguably should also be protected under Apple’s fiduciary responsibility, which then might conceivably conflict with maximizing Apple stock’s monetary value - a good judge might need to strike some balance between them.  Wall Street and the business schools of Harvard, Wharton, etc. would no doubt deny credence to any such arguments, but they might all be wrong in doing so.

In the same vein, I also disagree with your assertion (and no doubt that also of Wall Street, Harvard, Wharton, etc.) that maximizing Apple stock’s monetary value is always “... what is good for Apple in terms of motivating its execs and employees”, because I believe that financial motivations are not always the most important motivations for Apple execs and employees.  I wonder if Greg Smith would agree more with you or with me.

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