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Apple to Pay Dividend, Plans $10 Billion Buyback

March 19, 2012 — The Wall Street Journal — by: JESSICA E. VASCELLARO And MIA LAMAR    Bookmark and Share

The News Hub provides full coverage of Apple's decision to pay a $2.65 per share dividend and institute a stock buyback over the next three years

Apple Inc. AAPL +1.10% said Monday it would pay a dividend to shareholders and buy back up to $10 billion in stock, heeding calls for the technology heavyweight to deploy its massive cash pile.

The Cupertino, Calif., company expects to initiate a quarterly dividend of $2.65 a share in its fiscal fourth quarter, which begins July 1.

On a conference call Monday, Apple Chief Executive Tim Cook said that "these decisions will not close any doors for us," and that product innovation remained the company's priority.

The move to pay a dividend amounts to a significant shift for a company that had regularly argued it needed its cash to secure component supplies for its gadgets. It also opens the company up to a new class of investor that only focuses on dividend-paying stocks.

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The dividend payout—about $10.60 annually—will cost the company some $9.88 billion a year and carries a yield of 1.81%, landing it short of fellow cash kings like Microsoft Corp. MSFT -0.88% and Intel Corp., INTC -0.54% whose respective dividend yields currently stand at 2.45% and 3.03%. However, the yield is in-line or above other tech companies, like Hewlett-Packard Co., HPQ -0.65% 2%; Cisco Systems Inc., CSCO -0.10% 1.6%; International Business Machines Corp., IBM -0.40% 1.5%; and Oracle Corp., ORCL -0.74% 0.8%.

"I'm somewhere between surprised and disappointed," said Hersh Cohen, co-manager of Legg Mason's LM -0.39% $4 billion ClearBridge Equity Income Builder Fund, which focuses on dividend-paying stocks. He was hoping for a 3% yield and wasn't excited by the buyback plan. "It's good they're paying a dividend, but I would say this is not a game changer," he said.

Apple shares were up less than 1% to $589.70 in morning trading.

Google Inc., GOOG +0.58% Inc. AMZN -0.50% and eBay Inc. EBAY -1.46% are among the tech bigwigs that don't pay a dividend. Technology companies are among the most cash flush in the corporate world, as they typically don't tie up as much money in plants, real estate, equipment and inventory as do manufacturers and retailers.

Additionally, Apple's board authorized a $10 billion share repurchase beginning Sept. 30, the start of its fiscal 2013 year. The repurchase program is expected to be executed over three years. In the moves, Apple will use about $45 billion of its domestic cash over that period.

All Eyes on Apple

As of the end of December, Apple's cash, cash equivalents and short-term and long-term marketable securities totaled roughly $97.6 billion, more than the market capitalizations of all but 52 publicly traded companies at the time. That was up from the $59.7 billion in cash that Apple had on its balance sheet the year before.

As of Jan. 13, the company had 932.4 million shares outstanding.

As for the potential of a stock split, CEO Cook said Apple examined the possibility but decided there was little support that it would help the stock. He noted the company would continue to look at it as a possibility and would do it if it's in the best interest of and shareholders.

Mr. Cook also declined to provide specific details about sales of Apple's new iPad, which was released on Friday; the CEO only said Monday that it was a record weekend for the tablet and the company is "thrilled" with it.

Apple's stock has risen sharply in recent months, in anticipation of a change in the company's approach, and as it has posted quarterly revenue and profit records on brisk iPhone and iPad sales.

"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," said Mr. Cook 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."

Apple in Abundance

Monday's announcement, by Mr. Cook and Chief Financial Officer Peter Oppenheimer, ends months of speculation.

Since becoming CEO in August, Mr. Cook signaled he would consider more options for the cash stockpile than his predecessor, Apple co-founder Steve Jobs, who had been opposed to stock buybacks and dividends, according to people familiar with the matter.

At Apple's annual shareholder meeting in February, Mr. Cook said the company had been thinking about its cash "very deeply," and is actively discussing strategies for managing it with the company's board. "It is a lot," he added. "It is more than we need to run the company."

When asked about Apple's cash parked overseas, Mr. Oppenheimer said on the call the company had no current plans to repatriate. "We think that the current tax laws provide a considerable economic disincentive to U.S. companies that might otherwise repatriate the substantial amount of foreign cash that they have," he said. More than a third of its cash as of Dec. 31 was overseas.

Apple's dividend joins a large number of cash-rich tech companies that have yielded to investor demand for dividends over the years, including Microsoft, Cisco and Oracle. While some have done so as their growth rates matured and opportunities for investment diminished, investors still expect Apple to grow quickly but want it to return cash to shareholders, because it is generating significantly more than it needs.

"I think it's very much in-line with expectations," said David Rolfe, chief investment officer of Wedgewood Investment Partners, which owns about $150 million in Apple shares. "They're generating so much cash; they're still going to have a cash horde second-to-none."