Turns out investors need Apple’s money more than Tim Cook after all. In a press conference Tuesday morning, Apple announced its first dividend since 1995 and will pay shareholders $2.65 per share in the coming quarter. This is approximately equivalent to a 1.8% dividend yield, slightly lower than the 2.1% average for the S&P500. In conjunction with a $10bn share buyback program, the company expects to return $45bn in the next three years. This makes it the largest annual dividend payer in the S&P500 after AT&T, which expects to pay close to $10bn in the year.
Apple’s near $100bn war-chest is a relic of its leaner days in the mid-90’s, when it is said to have been 90 days from bankruptcy and had to get support from Microsoft in form of platform development support and a $150mn infusion. Since then, Steve Jobs had been running the company with tight purse strings despite the enormous and stable cash flow in recent years. Indeed, his biography included comments indicating he planned to use large amounts of the cash to enforce Apple’s (slightly dubious) intellectual property claims and had a new vision for how the future of the television would work.
But his passage brought Tim Cook to the helm, who as COO had been more pragmatic in running the company and as CEO initiated reviews of the best way to use its cash only months after Steve Jobs. Though Tim Cook may not have Jobs’ charisma, he is seen as being more investor friendly. The 0.7% return that Apple was earning on its $100bn drew the ire of many investors who think they would be able to better use the money (such as buying even more Apple stock with it).
There was much speculation about what announcement Apple was going to make for its cash pile, ranging from plain vanilla dividends, buybacks, stock splits, acquisition sprees, and even an in-house technology private equity shop to encourage sophisticated App Store software. But for a company with no debt and $13bn in the last quarter alone, most people expected that the strategic review would bring some important decisions. This move will likely allow income-investing managers to buy Apple, since many of them are required to only buy companies with dividends—watch for a jump at the beginning of next month as managers rebalance their portfolio to include Apple.