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After years of hand-wringing over Apple's (Nasdaq: AAPL ) cash pile, which sits slightly below a stunning $100 billion, the Cupertino giant has decided to enact a quarterly dividend of $2.65 and authorized $10 billion in buybacks. The company plans to pay out $45 billion over three years. When you consider that the company has generated $41 billion in free cash flow across the past year and should generate north of $60 billion in cash during 2012, the plan is pretty conservative.
Is $45 billion in three years conservative?
However, while the plan is relatively conservative, it should be welcomed by investors. Steve Jobs was notoriously frugal with his cash hoard, even ranting to biographer Walter Isaacson that he'd use every last penny to crush Google's (Nasdaq: GOOG ) Android. Apple is welcome to returning cash to shareholders, which is a step in the right direction.
Also, it's a positive sign that the company plans recurring dividends. Even though I still think Apple is undervalued, tech companies are notoriously lousy at rebuying their shares and investors aren't as receptive to this kind of repurchase of capital from tech giants. Both Microsoft (Nasdaq: MSFT ) and Cisco (Nasdaq: CSCO ) poured money into buybacks across most of the last decade with little to show for it. Microsoft CFO Peter Klein recently signaled the company is dramatically shifting its own focus away from buybacks and more toward dividends.
A bright outlook for yield
While the effective yield of 1.8% that Apple's dividend sets won't make it a dividend titan, that yield should quickly rise. Consider, that even with its payouts, its cash hoard could still eclipse $150 billion by the end of 2012. With some not-so-aggressive targets, Apple's cash hoard alone collecting only 2% to 3% annually could be among the 10 most profitable tech companies in the world by the end of 2014 if it only pays out its announced $45 billion.
Simply put, that means that while Apple started its dividend conservatively, the yield should only be going higher in coming years. Then there's also the fact that this dividend opens the company up to more funds with mandates for yield. All in all, while today's announcement won't sweep anyone off their feet, bigger yields are likely to come in the future.
Keep your perspective
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