With $97.6 billion in cash reserves and a record weekend of new iPad sales now just behind it, Apple has announced its first share-repurchasing and dividend program since 1995.
Maintaining investor relations had not been Steve Job’s primary concern, but with Tim Cook stepping up to replace Jobs (and Disney’s chief executive, Bob Iger, taking Job’s place on the board), the company’s structure will begin to distribute regular returns in dividends. The strategy doesn’t come as a surprise to analysts, who have suggested that Apple’s move has in part been influenced by Iger, seeing as how Disney been a proponent for dividends.
Beginning on July 1, investors will be regularly receiving a quarterly dividend of $2.65 per share, while the buy backs will begin in the fiscal year 2013, which begins on September 30. The program will take place over a period of three years with $10 billion to be spent on dividends in the first year, for a total of approximately $45 billion of its cash reserves between July 2012 and October 2015.
With this strategy, Oppenheimer revealed four underlying objectives motivating the dividend and share repurchasing program:
1. Apple wants to maintain the flexibility to take advantage of investment opportunities.
2. Apple wants to provide some current income for long-term shareholders.
3. Apple wants to increase the attractiveness of Apple to a wider investor base.
4. Apple wants to limit future dilution from its employee equity program.
While the company could have attracted more investors through a stock split, not surprisingly, Apple was unable to determine a benefit. “The current information we have would suggest that there’s very little support that it helps the stock,” Cook stated. While Apple had recently broken the $600-per-share mark (although it has dropped to $595 per share since), the Motley Fool points out that AAPL remains undervalued when comparing its price-earnings ratio with competitors, Amazon, Google and Oracle.
Cook confirmed that Apple has seen an extremely successful year with 37 million iPhones sold in Q4 of 2011 alone, but in reality, the sales of iPhones only accounted for less than 9 percent of total handset sales in the same quarter. Cook remained optimistic for the potential of iPhone in light of the buyback and dividend program, and revealed that it was competing in an expanding market of handsets that the iPhone has the potential to dominate. 1.6 billion handsets were sold in 2012, and projections indicate that number could be 2 billion by 2015. “The potential for iPhones is enormous,” Cook said.
For investors worried about Apple’s long-term outlook and that it was losing sight of what had propelled the company to prominence, Cook reassured investors that, “Innovation is the most important objective of Apple.” The company suggested that its capital will be reinvested into Apple, backed by its success with the iCloud and Siri. More specifically, the company plans on reinvesting its capital into 40 new retail stores and expanding its reach with new third-party resellers and partners, while investing directly in their enterprise sales force.
“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future.”
On a final note, Oppenheimer added that Tim Cook’s own unvested restricted stock would not participate in the dividend.
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