Apple taps $100B cash pile to pay dividend, buy back stock

The maker of iPads, iPhones, and Macs will begin paying a regular dividend and will buy back stock. It plans to spend $45 billion in the first three years of its new programs.

Apple's retail stores have helped it become a cash-generating machine. Sarah Tew/CNET

Apple plans to pay a dividend, finally putting to use a portion of its $100 billion cash hoard.

The company said it plans to initiate a quarterly dividend of $2.65 per share sometime in the fourth quarter of its fiscal 2012, which begins on July 1.

In addition, Apple's board has authorized a $10 billion share repurchase program commencing in company's fiscal 2013, which begins on September 30, 2012. The repurchase program is expected to be executed over three years.

"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."

In total, the company plans to spend $45 billion over the first three years of its new programs. It expects to spend more than $10 billion on dividends on the first year alone, which CFO Peter Oppenheimer said during a conference call would make Apple one of the largest dividend payers in the country.

Shares of Apple are up 1.4 percent to $593.93. Shares had earlier exceeded the $600 mark in premarket trading ahead of the announcement.

In paying a dividend, Apple is just the latest company to bow to intense shareholder pressure. The issue of what Apple does with its cash position has lingered for years as it has grown to a near obscene amount, and has been an issue for investors even when Steve Jobs was running the company.

A regular payout adds to the attractiveness of the stock, which continues to see tremendous growth thanks to hit products like the iPhone and iPad.

Apple would continually look at the dividend level, Oppenheimer said, but he declined to comment on how regularly the company would look at the payout.

The move should make Apple appealing to a new class of investors, ones looking for a safer investment with a regular payout.

"While the dividend has been widely expected, we believe that the dividend will make Apple viable to a broader base of shareholders," said Gene Munster, an analyst for Piper Jaffray.

Cook and Oppenheimer continually stressed that Apple would be tapping the cash it has in the U.S., and made the point to note that it would not be employing the cash it has overseas. Apple, like many U.S. multinational companies, has cash generated overseas that it is reluctant to bring back to the U.S. because of the current tax policy, an issue called repatriation.

"Because of the tax consequences of repatriating foreign cash, we focused on domestic cash," Cook said.

Growth companies, particularly in the technology sector, have long resisted paying a dividend, instead preferring to stockpile the cash or reinvest the money into their own business or in acquisitions. Technology companies in particularly have preferred to keep a healthy surplus in case of cyclical downturns or unforeseen problems. For many companies, a dividend is an admission that the growth trajectory has permanently slowed. The dividend acts as an alternative reason to buy a stock.

In the past few years, several large technology companies have relented and have begun paying a dividend. Microsoft began paying an annual dividend in 2003 before switching to a quarterly payout two years later. More recently, networking provider Cisco Systems began paying a dividend last year. Prior to that, CEO John Chambers had resisted the calls, insisting his company was still in growth mode.

For example, AT&T and Verizon, which have strong ties to Apple through the iPhone and iPad, pay out rich dividends to shareholders in part because their growth has slowed considerably over the years.

Apple is in a unique situation. The company continues to show tremendous growth, and by all rights could justifiably go on without paying a dividend and still attract investors.

In its last quarterly report, Apple saw a 73 percent jump in revenue and per-share earnings more than double over year-earlier results. That's not the sort of growth large and mature technology companies are supposed to show. Apple's growth isn't looking to slow; this past weekend's new iPad sales and the longer lines it drew on its first day are testament to the continued demand for its products.

But the fact that its cash position is so large makes it an easy target for shareholders, who criticize the company, saying it isn't doing enough to reward shareholders--a top priority for any public company.

Still, there were bound to be some shareholders disappointed that Apple didn't return even more cash, considering how large a stockpile it is sitting on. But Apple executives said they wanted to keep their strategic initiatives open.

"The program for today is significant, and we're excited about it," Oppenheimer said.

Updated at 6:40 a.m. PT: to include additional comments from Apple executives.

 

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