What Apple's Dividend Means for Investors

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
If you're interested in more dividends beyond Apple on your quest for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top, dependable, dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your complimentary copy today at no cost! Just click here to discover the winners we've picked.

Eric Bleeker owns shares of Cisco. The Motley Fool owns shares of Google, Cisco Systems, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (22)

Comments from our Foolish Readers

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  • Report this Comment On March 19, 2012, at 10:12 AM, 1984macman wrote:

    A very moderate dividend plan indeed - and that's good! Even better, the end of share dilution! All in all, a very good day indeed for long term stockholders!

  • Report this Comment On March 19, 2012, at 10:23 AM, FutureMonkey wrote:

    I welcome the dividend, but hate the share buy back plan.

    I love dividends because I can choose to reinvest if shares are fairly priced or redirect the cash myself. Share-buy-backs buy regardless of price and are often a stupid waste of cash...especially if the company simply re-dilutes the shares through executive compensation packages. Additionally AAPL's EPS growth is very strong, the share buyback doesn't move the needle very much in that metric. As far as I'm concerned the share buy back is flushing cash down the drain away from investors.

    FM

  • Report this Comment On March 19, 2012, at 11:36 AM, rodnog wrote:

    I'm just happy to see the end of "Apple Should Have a Dividend" articles.

  • Report this Comment On March 19, 2012, at 11:46 AM, baselineace wrote:

    Completely unnecessary. They should've given everyone a raise instead.

  • Report this Comment On March 19, 2012, at 12:13 PM, mikecart1 wrote:

    Steve Jobs would look at Apple today and not even recognize it. Today is a sad day for those that follow the immortal known as Steve Jobs and his philosophy.

    :(

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