Apple’s Dividend: Why Now?

Published on March 19, 2012
by John Paczkowski

The world’s most valuable company has finally decided what to do with its ballooning hoard of cash. Early on Monday it announced a quarterly dividend of $2.65 per share, giving Wall Street what it has long been asking for.

And something co-founder Steve Jobs famously refused for years to give it.

Asked in 2010 why Apple has never paid a dividend and rarely bought back its own stock, Jobs said dividends do not increase the value of the company for shareholders. “Our goal is to increase enterprise value,” he said. “Which would you rather have us be? A company with our stock price, and $40 billion in the bank? Or a company with our stock price and no cash in the bank?”

To Jobs, the answer to that question was clear, and the reason Apple last paid a dividend in 1995 — the year prior to his return to the company.

So why pay a dividend now? And what does the decision to do so say about Apple? Is it undergoing some great philosophical shift?

Consensus among the analysts and insiders is that it’s not. The company’s attitude toward what is today the largest cash balance in the tech industry isn’t particularly new, it’s just one that wasn’t ever expressed while Jobs was alive.

As one analyst quipped, “The driving reason for the dividend? Tim Cook actually meets with and listens to investors and shareholders. Steve Jobs did not.”

That’s an observation I’ve heard time and again this morning.

“Apple would have never paid a dividend under Jobs,” Piper Jaffray analyst Gene Munster told AllThingsD this morning. “Apple paying a dividend is evidence that the company is making its own decisions, not just blindly following in Jobs’s footsteps.”

So Apple under Cook is something of a different animal than it was under Jobs. And as much as Cook insists that he is keen on preserving Appleā€™s culture, he’s not unwilling to put his own mark on it. Particularly around a long-simmering issue like this, which has become a point of exasperation for many investors.

As Sanford C. Bernstein analyst Toni Sacconaghi told AllThingsD this morning, “I think the cash balance was overwhelming and the rationale for retaining it was becoming increasingly incomprehensible, particularly given the company’s capital requirements and the prevailing yield on cash.”

Ultimately, dividends are not just for slower-growth companies. They’re for companies like Apple that are still rich with ideas and poised for more growth. As Cook said this morning, “We can do this and still maintain a war chest and plenty of money to run our business. This will not close any doors for us.”

In the end, the biggest message given by Apple’s issuance of a dividend: “Under new management.”

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