March 19 (Bloomberg) -- Apple Inc. will pay its first dividend in 17 years and buy back $10 billion in stock, heeding investors who urged it to return part of the $97.6 billion in cash amassed by robust demand for iPhones and iPads.
Shareholders will receive a quarterly dividend of $2.65 a share starting in the period beginning July 1, Cupertino, California-based Apple said today in a statement. The buybacks will begin in the fiscal year starting Sept. 30 and happen over three years, the company said.
Chief Executive Officer Tim Cook is showing more willingness than co-founder Steve Jobs to channel part of cash and investments directly to investors. The move will cost $45 billion over three years, Cook said, and may broaden Apple’s shareholding base by attracting fund managers who only hold dividend-paying companies.
“It was high time to do this,” said David Rolfe, chief investment officer of Wedgewood Partners Inc., which holds Apple shares.
The dividend will cost Apple about $10 billion a year and represents a yield of 1.8 percent on the stock’s closing price today. The company generated $16 billion in cash in the first quarter of fiscal 2012, which ended in December. Shaw Wu, an analyst at Sterne Agee & Leach Inc., predicts that Apple will generate about $75 billion in cash this year.
Apple rose 2.7 percent to $601.10, closing above $600 a share for the first time.
Top 10 Yield
“This is something that large shareholders have been asking for,” Wu said before the announcement.
Including instances where a company has scrapped and re-established dividends, today’s was the largest initiation for a company in the Standard & Poor’s 500 Index, surpassing Cisco Systems Inc.’s announcement of a $1.3 billion dividend in March 2011. Apple’s move pushed the dividend yield of the benchmark gauge of American equities to 2.14 percent, from 2.06 percent, Howard Silverblatt, S&P’s senior index analyst, said in an interview.
Apple’s dividend may provide a short-lived boost to some pockets of the economy, said Richard Sichel, CIO of Philadelphia Trust Co., which manages $1.6 billion and holds Apple in some funds.
“More than anything, it’s a psychological boost,” Sichel said.
At 1.8 percent, the yield on Apple’s dividend would be the tenth-highest among U.S. technology companies with market values larger than $10 billion, data compiled by Bloomberg show.
Intel, Microsoft Higher
It’s lower than that offered by Intel Corp., which yields 3.03 percent, based on today’s closing price, and Microsoft Corp., which yields 2.48 percent on that basis. It tops Cisco’s dividend yield of 1.59 percent and International Business Machines Corp.’s 1.46 percent yield.
After today’s announcement, Google Inc., owner of the most popular search engine, is now the only technology company with a market value of more than $100 billion that doesn’t offer a dividend.
The growing amount of money on Apple’s balance sheet followed the introduction of the iPhone, the best-selling smartphone, and the iPad, the leading tablet computer. The company last week began selling a third-generation iPad, which comes with a high-definition screen and faster processor. Apple sold more than 3 million iPads on its debut weekend, a record, Apple said in a separate statement today.
“It’s literally become a cash machine,” said Charlie Wolf, an analyst at Needham & Co. in New York.
Contrast With Jobs
Gene Munster, an analyst at Piper Jaffray Cos., said Jobs, who died in October, resisted efforts to get Apple to return money to shareholders.
“It would have been unheard of under Jobs’s watch,” said Munster. “This is just finance 101, but it looks like rocket science next to what they’ve done in the past.”
Of Apple’s $97.6 billion in cash and investments at the end of December, about $64 billion was overseas. Oppenheimer said Apple will only use money held in the U.S. for the dividend and buyback to avoid tax consequences.
A dividend is a boon to shareholders, including Apple employees, who have already seen the company’s stock rise 48 percent this year.
Fidelity Management, Apple’s largest shareholder, will make $128.81 million each quarter from the dividend, based on its holdings as of Dec. 31. Vanguard Group Inc., the second-biggest shareholder, will receive $98.54 million and State Street Corp. will make $92.12 million.
“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,” Cook said in the statement. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business.”
On the conference call, Cook said adding a dividend will expand Apple’s investor pool. Some investors will only buy shares in companies that pay a dividend.
Apple last paid a dividend in 1995, before Jobs returned as CEO and led the introduction of top-selling products including the iPod, iPhone and iPad. The final dividend, of 12 cents a share, was suspended amid leadership upheaval and dwindling computer-market share. According to a company filing, Apple’s cash, equivalents and short-term investments dropped by about half, to $491 million, in the year through Sept. 29, 1995.
Highlighting its turnaround since that period, Apple has surpassed Exxon Mobil Corp. as the world’s most valuable company. The iPhone maker’s market value is $560.4 billion, based on today’s closing price. That compares with $410 billion for Exxon Mobil.
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