Discussion Boards

Show Me the Money, Steve!

By Tim Beyers
January 13, 2005

Dear Steve,

Congratulations. Your Macworld magic was again a huge success, and Apple's (Nasdaq: AAPL) latest quarterly results are a coup for your iEmpire. You've even got my curmudgeonly colleague, Seth Jayson, thinking about ritually destroying his beloved PCs in favor of Macs. You and your team have done a brilliant job.

Now let's not waste the moment, OK?

Today, Apple is as healthy as it has ever been. Take a look at that pristine balance sheet. Apple has more than $6.4 billion in cash -- up $900 million in three months -- and zero debt. Roughly 70% of your company's $9.3 billion in tangible assets is in cash. And, according to Yahoo! Finance, Apple generates more than $700 million in free cash flow annually.

So why, oh why, isn't Apple paying a dividend? Clearly the company can afford it.

There are dozens of reasons to kick back some profits to shareholders, so I won't list them all here. I don't need to. You're a smart guy and you know the argument, so allow me to tackle this from a different angle: Apple has been one of the worst in recent history at transferring wealth from shareholders to employees through the liberal use of stock options. Share dilution was a sky-high 6.6% last year. Expensing options would have sunk earnings by more than 35% in 2004. With the Financial Accounting Standards Board ready to require expensing by the summer, you'll likely have to yoke back on options grants. But that's going to leave some disappointed employees unless you come up with another strategy.

Here's an idea: Start paying a dividend. Now. Most of your employees are already shareholders. Think they'd start complaining if you paid out, say, $0.50 per share in dividends annually? I doubt it. Plus, how nice would it be for the employee who has 1,000 shares to get a $500 payout over four quarters?

Would a dividend totally compensate for a reduction in options grants? Of course not. But shareholders don't deserve the short shrift that is excessive dilution, either. And you can afford it. A $0.50-per-share payout doesn't even come close to your annual free cash flow. So no more excuses, please.

You've got more than 400 million owners. Stock option grants are available to only a thin slice of them. Yet all can benefit from a healthy dividend. Isn't it time to give those who invest their money with you equal treatment?

Foolish best wishes,


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Fool contributor Tim Beyers wishes he had bought Apple's stock when he first recommended it, but, alas, he didn't. He still doesn't own shares in the company. To see what's in Tim's portfolio, check out his Fool profile, which is here. The Motley Fool has a disclosure policy.