Win Apple's Money

The world's most valuable tech company is finally ready to cut shareholders some dividend checks.

Apple (Nasdaq: AAPL  ) initiated a dividend policy today, and it also earmarked billions more for an ambitious share buyback program.

The iEverything company will begin shelling out a quarterly distribution of $2.65 a share starting this summer, giving it a yield of 1.8% based on last week's close. Apple will also embark on a $10 billion stock repurchase program in fiscal 2013 (which begins in October, for those scoring at home).

Through both the new quarterly disbursements and massive buyback, Apple expects to return a whopping $45 billion to its investors over the next three years.

Money problems
It was really just a matter of time. The class act of Cupertino had amassed nearly $100 billion in cash and marketable securities as of its latest quarter. Every passing quarter finds Apple's hoard growing. It's important for a company to save up for a rainy day, but Apple had accumulated enough money to buy every person on the planet a poncho and a pair of galoshes.

Like most cash-rich American companies watching over booming global empires, Apple's cash situation is more complicated than it seems. It's not a matter of swiping a card at the mother of all ATMs and watching billions spit out. Roughly two-thirds of the money on Apple's balance sheet is bolted down overseas. Apple can't access those funds domestically unless it chooses to pay stiff repatriation taxes to bring that money back home. Between the 35% repatriation hit and the dividend tax that investors would have to pay, we're looking at half of the money being brought back home for a dividend being funneled off to Uncle Sam.

The dilemma even had Bernstein Research analyst Toni Sacconaghi suggesting that Apple should take out $50 billion to $100 billion in debt to initiate a substantial dividend policy.

The world's richest company would be transformed into its biggest borrower!

Thankfully, Apple has come to a workable solution. Income investors will get their piece of the action, and Apple won't have to turn to underwriters to help drum up the financing to make it happen.

Low-hanging fruit
Yes, $45 billion in cash committed to its new payout and upcoming repurchase is more than it has available domestically at the moment, but this is Apple.

The money will keep coming. It just sold a record number of iPads over the weekend. It sold a record 37 million iPhones during the holiday quarter.

Let's put this into its proper perspective. Apple had $59.7 billion in cash and marketable securities on its balance sheet just a year ago. It closed out its latest quarter with $97.6 billion on its books. How much more do you think Apple would have a year from now? Even with a good chunk of that incremental wealth parking itself overseas, Apple should have no problem sustaining its new rate -- and probably boosting its distributions over time.

Apple is doing the right thing. Idle cash is collecting a pittance in interest income. The company can continue to make small acquisitions the way it has in recent years. It's not as if Apple could aim higher. It's too big. Regulators would shake their heads if Apple was ever looking to make a deal that would truly move the needle.

As far as keeping enough dry powder around to bankroll new innovations, has that ever stopped Apple? The tech bellwether is oozing money even after it invests in creating breakthrough smartphones and tablets. Whether we're talking about smart TVs later this year or full-blown hovercraft vehicles and jetpacks a decade from now -- one can dream, of course -- Apple won't be panhandling to transform its visions into realities.

There's only one Cook in the kitchen
Apple originally initiated a dividend policy in 1987, scrapping it eight years later when its Macs were losing ground to cheaper PCs.

Steve Jobs shrugged off calls for the company to return to its payout-dispensing ways, arguing that the company's bountiful balance sheet made it easier to make long-term deals with component manufacturers. There may be some truth to that, but Apple was stockpiling far more money than it truly needed.

Cynics will argue that Apple is jumping the shark, as many tech giants have done when they began cutting quarterly dividend checks. No. Apple is just getting its feet wet -- and opening up the company to a new breed of yield-hungry investors.

Longtime Fool contributor Rick Munarriz does not owns shares in any of the stocks in this article. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.


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  • Report this Comment On March 19, 2012, at 1:23 PM, toneill69 wrote:

    about time apple and its great you are seeing the light and appreciating your owners.

    as for that reparation tax- now there is a stimulus that is fair - let investors spend their own money. I promise Pres. Obama i will spend it as foolish as i can in bars, restaurants,hotels that create more jobs than uncle sam would with that high tax.

  • Report this Comment On March 19, 2012, at 2:44 PM, 1984macman wrote:

    IMHO, the stock buyback is almost as important. With it, they've basically ceased diluting the stock with options. That's going to increase the demand because the supply is no longer increasing. That in turn counters the flow of cash out of the company which would otherwise tend to depress the stock price over time (as the company loses the value of that cash dividend).

    Smart move, and as a stockholder I approve.

  • Report this Comment On March 19, 2012, at 8:44 PM, damastr wrote:

    It's a tad bit misleading to state that if AAPL were to repatriate foreign cash they will pay 35% plus 15% on dividend making it about half the money going to govt. They will get back the taxes they paid to the country where money is repatriated from. For example if the tax rate in foreign country is 20%, uncle same gives back 20% so AAPL ends up paying only 15% extra not the whole 35%.

    As for buy-backs, AAPL should NOT buy back stocks just to counter the dilution caused by option exercises etc. which will be a dumb use of the money by selling low buying high. They should ONLY buy stock back after careful consideration to the intrinsic value -- and that remains to be seen.

  • Report this Comment On March 19, 2012, at 8:54 PM, lowmaple wrote:

    So they wait till October to buy back shares. When they are who knows what price. Hopefully they wait till the price drops(buy on dips)

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