NEW YORK - Apple is finally acknowledging that it has more money than it needs. But don't expect it to cut prices on iPhones and iPads. Instead, the company said on Monday that it will reward its shareholders with a dividend and a share buyback program.
Apple, the world's most valuable company, sits on $97.6 billion in cash and securities. The decision to return some of that money to investors is a clear signal that Apple is taking a different approach in the post-Jobs era.
Former CEO Steve Jobs resisted calls to issue dividends for years. He used to say the money was better used to give Apple maneuvering room to, for instance, make strategic acquisitions. Apple paid a quarterly dividend between 1987 and 1995, a period when Jobs was not involved with the company.
Jobs died in October after a long fight with cancer.
On Monday, new CEO Tim Cook said that, with as much cash as Apple has on hand, a dividend won't restrain the company's options.
"These decisions will not close any doors for us," he told analysts and reporters on a conference call.
Had it kept amassing cash and low-yielding securities, Apple eventually could have opened itself to a legal challenge from shareholders, who could have argued that it was misusing their money.
Cook also suggested that the dividend could have been larger if U.S. tax laws were different.
Apple said that it will pay a quarterly dividend of $2.65 per share, starting in its fiscal fourth quarter, which begins July 1.
The dividend works out to $10.60 annually, or 1.8 percent of the current stock price. By comparison, Microsoft Corp., pays 2.5 percent of its stock price in dividends, and Hewlett-Packard Co. pays 2 percent.
However, in absolute terms, Apple will pay one of the richest dividends in the U.S. It will spend more than $10 billion on dividends in its first year, placing it just below companies including AT&T Inc. and Verizon Communications Inc., for whom the dividend is the main way of attracting investors.
Exxon Mobil Corp., the world's second largest company by market capitalization, pays about $9 billion in dividends annually.
Apple generated $31 billion in cash in the fiscal year that ended in September, and is on pace to generate even more in the current year. That means its cash pile will continue to grow even with a dividend and a buyback program, albeit at a lower rate.
Even if it had no net cash, Apple would hardly be financially constrained, since it could borrow all the money it needs.
The dividend opens up ownership of Apple shares to a wider range of stock mutual funds, potentially boosting the stock price in the long term. Many "value-oriented" funds are not allowed to buy stocks that don't pay dividends
Apple said the $10 billion share buyback program will begin next fiscal year, which starts Sept. 30, and run for three years.
Investors had been expecting the announcement, driving Apple's stock up 37 percent since management hinted in January that a dividend was in the works.
Buybacks are a popular alternative to dividends, since they reduce the number of shares outstanding. That means every remaining investor has title to a larger share of the company.
Cook said the main point of Apple's buyback is to offset the shares issued to reward the Cupertino, Calif., company's employees.
In late morning trading, Apple shares rose $7.93, or 1.3 percent, to $593.50. Last week, the shares hit an all-time record of $600.01. The company is worth $553 billion.
The dividend and buyback announcement comes three days after the launch of Apple's latest iPad tablet in the U.S. and nine other countries.
Cook said the company also considered splitting its stock, and continues to look at that option. Stock splits increase the number of shares while reducing their value, potentially making it easier for small investors to buy them. But Cook said "there's very little support" for the idea that this helps the stock overall.
Cook said that as Apple analyzed how much it could give out to shareholders, it looked solely at the cash it has in the U.S. Like many big exporters, Apple has much of its cash overseas -some $64 billion, specifically.
Apple is reluctant to bring back overseas profits. In addition to being taxed in their respective countries, those profits would be subject to the 35 percent U.S. corporate tax rate.
"Current tax laws provide a considerable economic disincentive to U.S. companies that might otherwise repatriate a substantial amount of foreign cash," Chief Financial Officer Peter Oppenheimer said.
Cook said Apple looked at how much domestic cash it had, then set aside enough for planned investments and unforeseen outlays. What was left over would be given out to shareholders, he said.
That suggests that if Apple could
bring back its $64 billion in overseas money, the rewards to shareholders could be larger. Corporations have been clamoring for a change in tax laws, or a repeat of a 2004 tax amnesty on repatriated earnings.