A lot of tech companies are sitting on mountains of cash.
Apple's is the biggest -- more than $100 billion in cash and marketable securities -- and this week Fortune's Apple reporter Adam Lashinsky (who just wrote an insider's book on the company) reports that Apple is thinking about paying a dividend.
This would be Tim Cook's doing -- Steve Jobs thought returning cash to shareholders was a failure of imagination. Here's a passage from Lashinsky's book, Inside Apple: "He loathed stock buybacks, arguing, with good reason, that they are bribes to investors rather than good uses of capital … such topics were considered off the table with Jobs."
Jobs may have had a point.
In the tech industry, paying a dividend is akin to admitting you're no longer a high growth company.
That hasn't always been the case -- HP and Intel have both been paying dividends since the early 1990s, and both companies have shown fine growth since then.
But take a look at the stock performance of the last three big tech companies who decided to draw down their cash to pay a dividend. In each case, the stock price was flat or down before the dividend was declared.
Microsoft announced it would pay a dividend in January 2003 (the small blue Ds represent dividend payments). Before, its stock price had fallen significantly from a peak in 2000. The dividend does not seem to have helped:
Oracle followed suit in April 2009. Here, the dividend may actually have boosted the share price a bit.
Now, take a look at Cisco, which announced dividends last March. Once again, the stock price has been flat (it's too early to tell if the dividend will help raise it):
Now, look at Apple's stock performance over the last 10 years:
You can use just about any other metric, too -- revenues, profits, cash on hand. In each case, Apple is on a steep growth curve that's amazing for a company its size. These other three companies are much flatter.
So why would Apple pay a dividend?
It's certainly not to boost its share price.
Instead, it could be seen as a reward for the most loyal Apple shareholders. So far, the only way investors have made anything from Apple stock is by selling it. Returning cash to shareholders is a way of showing them value for sticking with Apple throughout its spectacular run -- and giving them a little more incentive to keep holding.
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