Apple recently announced plans to initiate a quarterly dividend of $2.65 per share starting July 1 in the fourth quarter of 2012. It will also launch a $10 billion share repurchasing program in fiscal 2013, which begins Sept. 30, 2012. The company expects to spend $45 billion in the next three years.
The repurchase program was implemented to neutralize “the impact of dilution from future employee equity grants and employee stock purchase programs,” Apple indicated in a press release.
“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,” said Tim Cook, Apple’s CEO. “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.”
The move makes Apple one of the largest dividend payers in the US. The company last paid dividends in 1995 in which shareholders netted 12 cents per share.
In effect, Apple is writing a check directly to shareholders, who will then have to pay taxes on the dividends. While buying back stock would avoid those tax issues, that stock is currently at an all time high, so Apple would have to pay premium rates just to buy from itself. Also noteworthy is the fact that the company is using its domestic stockpile for the dividend and share buybacks, as tapping overseas cash would incur a stiff check to the IRS.
“Repatriating the cash from offshore would result in significant tax consequences under current U.S. laws,” Apple CFO Peter Oppenheimer said during a conference call Monday morning.
The company expects its dividend payments to be over $2.5 billion a quarter, and over $10 billion per year.
At $97 billion, the sheer size of Apple’s piggy bank represents about 8 percent of all corporate cash, according to Moody’s Investors Service. Without the dividend or buyback program, the company’s cash could well have grown to over $150 billion, or 12 percent of all corporate cash, by the end of the year. Now that the hammer has spoken, Apple’s shareholders must feel like they’ve woken up on the right side of Vegas.