By Palash R. Ghosh: Subscribe to Palash's RSS feed
January 7, 2011 5:03 PM EST
Steve Jobs has long resisted the urge to dip into Apple Inc.’s (Nasdaq: AAPL) huge treasure chest of cash and pay out dividends. Given how Apple shares have sailed into the stratosphere, supported by wildly successful product launches (thereby making lots of happy investors); the company is unlikely to hand out dividends for the foreseeable future.
When asked about why the company pays no dividends, Jobs has repeatedly stated that the huge cash hoard represents a kind of security blanket for Apple -- a quick and easy way to make acquisitions (should the need arise) and/or develop new products through long-term R&D projects.
“We know if we need to acquire something, a piece of the puzzle to make something big and bold, we can write a check for it and not borrow a lot of money and put our whole company at risk," Jobs once said.
"The cash in the bank gives us tremendous security and flexibility."
Indeed, when Jobs returned to the company in the spring of 1997, Apple was reportedly on the brink of bankruptcy. Perhaps he remembers those dark days very well.
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Moreover, paying dividends represents a sea-change in the perception of a company – namely, that it has “matured” and will not grow much anymore (think of the tired old utility companies).
Clearly, this is not an image that Apple has for itself, nor do its shareholders, who are obviously thrilled by the rapid growth the company has enjoyed and will likely continue to enjoy (particularly as the vast Chinese market becomes more penetrated).
Perhaps a comparison to one of Apple’s major rivals Microsoft (NYSE: MSFT) is apropos.
At one time, Microsoft had almost $60-billion of cash on the balance sheet, from which they used about $32-billion to make a special one-time dividend (in 2004). Just late last year, Microsoft raised its dividend by 23 percent to $0.16 per share.
However, a quick glance at Microsoft’s stock chart reveals that its share price has gone nowhere in ten years. Not even a number of stock buybacks have helped push up the stock price.
Microsoft probably wishes it had held onto that multi-billion dollar largesse.
Another tech giant, Cisco Systems (Nasdaq: CSCO) has also succumbed to stockholder pressure and announced it will start paying a dividend before July.
However, Cisco’s shares have plunged from almost $70 in spring of 2000 (when the tech bubble popped) to just above $20 now (meaning the company has lots of disgruntled investors on its hands).
Meanwhile, since April 2003, Apple shares have rocketed from just above $7 per share to more than $333 currently, making it the world’s second largest company behind Exxon-Mobil (NYSE: XOM) – moreover, robust sales and growth expectations may pave the way for further substantial share price gains.
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