After a Sunday night announcement that Apple, Inc had concluded on what to do with its towering cash hoard, investors and commentators set the internet ablaze with predictions. Some called for a big one-time divided; others hoped the company stayed the course and kept its cash to invest further in research and development and global expansion.
This morning we got our answer. Tim Cook, Apple’s CEO, announced in an early morning conference call that later this year the company would declare a $2.65/share dividend (pending approval from the board of directors) and that they’d begin a ten-billion dollar share repurchase program to take place over the next three years.
This is great news, as both an avid Apple product consumer and small time investor. As a consumer, I’m heartened to see that Apple still has a clear strategic plan to continue investing in new ideas and creating great products. There is little doubt that Apple has a considerable technological advantage over its competitors—especially in the tablet business—and it seems every year Apple dangles a concept in our faces to let demand pent up until the latest lithely styled gadget is ready for its debutante.
As an investor I’m happy with this announcement for two reasons. First, a strong cash position is never something investors complain about. But when a company single handedly contributes to a 36% increase in total corporate cash since 2009, one begins to wonder if this is—among other things, such as a clinically diagnosable condition to hoard—good asset management. According to its latest annual filing, Apple earned just 0.77% on its cash balances. This is a paltry return that even the most passive investor can exceed on his or her own. Secondly, I like that Apple is now a dividend paying stock because it opens the door for more big time investors. Many income investment funds, such as those that pension funds invest in and that 401k plans offer, prohibit the purchase of non-dividend earnings securities. Thus, the flood gate is now open for a ton of big money to get in on this healthy dividend.
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