Pay a Dividend, Apple!

One of the recurring themes in the tech sector is whether companies are hoarding too much cash. Microsoft (Nasdaq: MSFT  ) once had a cash hoard of nearly $60 billion, part of which it used to pay out a special one-time dividend of nearly $32 billion to investors. That's a big chunk of change!

However, partially because of fears brought about by the recession, we've seen a number of firms once again cramming their cash drawers beyond capacity. That can be bad for investors, since that cash is usually earning short-term rates. If companies don't have a use for the money, they could give it back to investors, to allocate it as they see fit.

The most notable of these cash-clutchers is Apple (Nasdaq: AAPL  ) , which has about $40 billion in cash sitting on the balance sheet. What does Apple plan to do with all that loot? It's far in excess of any R&D demands, and the company has always followed a strategy of small acquisitions. Indeed, that approach makes sense for Apple -- the idea of a company with such a unique vision and relentless pursuit of quality swallowing up and integrating another company doesn't make a lot of sense.

There are signs that other tech companies are loosening their grip on their accumulated wealth. Both Cisco (Nasdaq: CSCO  ) and Microsoft used fortunate conditions to issue debt at what they considered favorable rates. Then there's also the possibility of an M&A boom. Following SAP's recent big acquisition of Sybase, it looks like that market will continue heating up.

All in all, tech companies are probably stiffing shareholders a bit by keeping capital they're not using on the balance sheet at really low rates. However, big companies -- Cisco, Oracle, IBM, and probably even Microsoft -- might start using that lucre for M&A in the coming quarters.

To Apple and Jobs, my advice is this: Do what's right for shareholders. Pay a dividend.

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Eric Bleeker does not own shares of any stocks mentioned. Apple is a Stock Advisor recommendation. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2010, at 11:51 AM, sidste wrote:

    What do you think about a stock buy-back? It would give EPS a boost and not create a taxable event for share holders.

  • Report this Comment On June 14, 2010, at 11:53 AM, geoslv wrote:

    Agreed. Shame Apple.

  • Report this Comment On June 14, 2010, at 11:57 AM, geoslv wrote:

    Oops, sidste slid in before mine appeared. I'm agreeing with the article.

    Don't care for this share buyback psychology for manipulating the share price.

  • Report this Comment On June 14, 2010, at 11:59 AM, weiwentg wrote:

    The other thing about hoarding cash is that it tempts a company into making acquisitions. Microsoft is guilty of this. Most large acquisitions destroy value for shareholders, imo. Fortunately, Apple has refrained, so far. But that reinforces the case of why they need to pay a dividend.

  • Report this Comment On June 14, 2010, at 1:34 PM, TMFEditorsDesk wrote:

    Hey sidste,

    Share repurchases could work as well. Speaking from a tax effectiveness standpoint, it'd be more efficient for investors.

    Best,

    Eric Bleeker (TMFRhino)

  • Report this Comment On June 14, 2010, at 1:42 PM, gslusher wrote:

    Paying a dividend is really good for investors, according to the author and commentors. Let's see how investors did, based upon MSFT & AAPL prices.

    Over 1 year, MSFT is up 9.6%, less than the DJI (18.6%) and NASDAQ (23.5%). AAPL is up 86%.

    Over 2 years, MSFT is down 11.7%, better than the DJI (down 17%), but worse than the NASDAQ (down 8.6%). AAPL was UP 47%.

    Over 5 years, MSFT is up 2.5%, again better than the Dow (down 3.9%), not quite as good as the NASDAQ (up 7.3%). AAPL is up 562%. IOW, $1,000 invested in MSFT in June, 2005 would now be worth $1,002.50. An investor of $1,000 in AAPL at the same time would now have $6,620 in stock. The dividend must have made up for that, right?

  • Report this Comment On June 14, 2010, at 8:13 PM, damastr wrote:

    Agree with the author that Apple could start with at least a token amount as dividend. Share buy back is generally a good idea but ONLY if price is appreciably below intrinsic value else it ends up destroying shareholder value. Apple doesn't need to do anything stupid with cash -- like a big acquisition or a huge one time dividend -- just because they have it. Right now Microsoft would be wishing they hadn't reduced their coffers by a whopping $32B on one time dividend.

  • Report this Comment On June 16, 2010, at 2:59 PM, DBrown7 wrote:

    Apple has generated almost $12 billion in free cash flow for the trailing twelve month period ending 3/31/10. They could easily institute a $5/sh annual dividend and not even use 50% of FCF or touch that $40 billion pile of cash. I only want share buybacks when shares are undervalued.

  • Report this Comment On December 07, 2011, at 10:27 AM, dionni wrote:

    Companies' cash hoarding can sometimes save the life of the firm, sacrificing bonuses and other employees' incentives to generate cash. On the situation with Apple, a wise decision probably for next quarter planning.

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