Apple (AAPL) CEO Tim Cook and CFO Peter Oppenheimer confirmed Monday what Wall Street had been buzzing about for months: the tech giant will start buying back shares and pay investors a quarterly dividend.
"This is certainly positive news for shareholders," says Morningstar senior stock analyst Michael Holt. "It's nice to see [Apple] returning [cash] to shareholders and…it's almost a relief to know they're not going to do a $50 billion acquisition that wouldn't make sense."
Apple, the most valuable company in the world based on market cap, has been sitting on nearly $100 billion in cash and investments in the past year. Apple "needed to do something" with its cash, according to Holt, who views $100 billion as "definitely excessive."
Apple will pay $2.65 per share to investors starting in the fourth quarter of fiscal 2012, a period that begins July 1. That's equal to a 1.81 percent dividend yield, which is far smaller than what Microsoft (MSFT) and Verizon (VZ) pay to shareholders every quarter. The dividend on the S&P 500 Index (GSPC) is 2 percent. The company also announced plans to buy back up to $10 billion of its shares, starting in fiscal 2013 which begins on Sept. 30.
Apple founder and former CEO Steve Jobs was staunchly opposed to offering dividends. The last time Apple paid a dividend was in 2005 but that program was "suspended amid leadership upheaval and dwindling computer-market share," according to Bloomberg News. The dividend payout is expected to cost Apple $9.88 billion a year. Apple will begin its $10 billion share repurchase program on Sept. 30 of its fiscal 2013 year. Apple has 932.4 million shares outstanding.
Tim Cook has made his own mark on the company since officially becoming CEO in August 2011, but he's largely following in the footsteps of his predecessor, Holt says.
Cook "is definitely a different leader" than Jobs but Monday's announcement is "driven by the fact that their cash position has grown so large," Holt says. "There's a big difference between $30 billion in cash and $100 billion in cash. You can give some back to shareholders without hindering any of your future strategic plans."
Apple's 23-minute conference call with analysts left little time to discuss iPad sales and product launches. Cook would only say Apple had a "record weekend" of new iPad sales and "we're thrilled with it."
Shares of Apple traded higher after Monday's buyback and dividend announcement. Holt rates Apple three out of five stars.