Apple Uses $100 Billion Cash Pile to Issue Dividends, Buy Back Shares

  on March 19 2012 1:44 PM
An Apple employee counts money as a customer purchases Apple's new iPad at the 5th Avenue Apple Store in New York
An Apple employee counts money as a customer purchases Apple's new iPad at the 5th Avenue Apple Store in New York Reuters

Apple CEO Tim Cook has acknowledged that the company has too much cash lying around - nearly $100 billion just sitting in the bank. The CEO admitted so much cash is unnecessary, and should be spent on advancing the company.

In an unusual media alert issued on Sunday, March 18, Apple invited media and analysts to a conference call on Monday, March 19, at 9:00 a.m. Eastern Time. During the conference, scheduled to last for three hours, CEO Tim Cook and CFO Peter Oppenheimer discussed the state of its cash balance. Cook and Oppenheimer will announce the outcome of the company's discussions concerning its cash balance. Apple will not be providing an update on the current quarter nor will any topics be discussed other than cash, read the conference call announcement.

The anticipated announcement to be made by CEO Tim Cook and CFO Peter Oppenheimer put an end to months of speculation about Apple's approach to cash reserves.

On Monday morning, Cook announced that Apple will pay out quarterly dividend and share buyback that will pay out $45 billion over three years. The tech giant said it will initiate a regular quarterly payout of $2.65 a share, beginning July, and buy back up to $10 billion of its stock, beginning in the next fiscal year. The $10 billion annual dividend program is among the largest cash payouts made by U.S. corporate giants in a decade.

Investors Urge Apple to Return Some Cash as a Dividend

They should pay a dividend, said Sterne Agee & Leach Inc. analyst Shaw Wu. This is something that large shareholders have been asking for. As the great demand for Apple's iPhones and iPads surged, increasing the company's cash reserves, investors have urged Apple to return some of it as a dividend. Back in February, during Apple's annual shareholder meeting, Cook said the company had been discussing strategies for managing its cash with the company's board. It's a lot, added the CEO. It's more than we need to run the company. At the time, the board was reportedly considering its options.

Wu, who forecast that Apple will announce an annual dividend of two to three percent of its share price, said that Apple directors held a meeting in the past few weeks to discuss the options. Apple's closing share price of $585.57 on March 16 indicates a dividend of $11.71 to $17.57. Apple has not issued shareholder dividends since 1995.

Great Increase in Cash Balance

Apple's cash, cash equivalents, along with short-term and long-term marketable securities, totaled around $97.6 billion as of the end of December, up from the $59.7 billion in cash the company had on its balance sheet the previous year.

Tim Cook, Open to More Options for the Cash

Apple's former CEO and co-founder Steve Jobs had been opposed to dividends and cash buybacks. Since becoming the new CEO in August, however, Cook indicated he would consider more options for the cash balance than his predecessor. In anticipation of a dramatic change in the company's approach, Apple's stock has increased sharply in recent months. The company posted record quarterly sales and profit records on surging iPhone and iPad sales. Apple's shares closed at $585.57 on Friday, up 45 percent since the beginning of the year.

On Monday, Cook said the company will continue to follow the vision of Steve Jobs, the late co-founder of Apple. 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, Cook said. You'll see more of all of these in the future.

Innovation is the most important objective at Apple and we will not lose sight of that, he added.

Apple shares were up 2.28 percent at $598.80 during early afternoon trade on Nasdaq.

(reported by Alexandra Burlacu, edited by Surojit Chatterjee)

Join the Discussion