Last week’s announcement of the iPhone 4S from Apple Inc. (NASDAQ: AAPL) has been followed up with the company’s announcement that it has taken 1 million pre-orders for the new phone in just one day. That surpasses the company’s previous record of 600,000 iPhone 4s on a single day. An investor might be tempted to ask for a piece of the action.
Apple has consistently fought calls for a dividend with the comment that the company needs to keep a pile of cash available for the ubiquitous “strategic opportunities.” But $76 billion in cash and short-term investments? A dividend of, say, 2% certainly wouldn’t break the company and might even attract more investors.
High-tech firms are notoriously wary of dividends. But some of the largest have come around. Microsoft Corp. (NASDAQ: MSFT) pays a dividend yield of 3%, Intel Corp. (NASDAQ: INTC) pays 3.8%, Cisco Systems, Inc. (NASDAQ: CSCO) pays 1.4%, and Oracle Corp. pays 0.8% based on this morning’s stock prices. Microsoft’s annual dividend is $0.80, Intel pays $0.84 annually, and both Cisco and Oracle pay $0.24 annually.
If Apple were to pay a 2% annual dividend, how much would it cost the company? Apple’s share price has risen to nearly $384 this morning and its market cap is $355 billion. The company has 927 million shares outstanding. As a percentage of the company’s market cap, a 2% dividend totals $7.1 billion. As a percentage of its share price, the annual cost to Apple would be $7.11/share. That’s less than 10% of the company’s cash, still leaving the company with a cash hoard of nearly $69 billion. It’s also a huge premium to the other high-tech dividend payers.
Apple’s third-quarter profit totaled $7.3 billion and there’s no reason to believe that the company’s profit has fallen during the most recent quarter. Sales figures for the iPhone 4S should put to rest any qualms about profitability.
Apple’s share price has risen about 15% so far this year, and is up 120% over the past two years. To an investor, that should more than make up for the lack of a dividend. But even that kind of growth doesn’t really justify a $76 billion cash hoard.
And it’s not like Apple makes a lot of “strategic” decisions that include acquiring other companies. Or overpaying for those companies. The largest acquisition the company has made in the past decade is Quattro Wireless, a mobile ad service, for which Apple paid $275 million. Apple simply doesn’t make $8 billion deals such as the one Microsoft struck with Skype.
The calls for Apple to pay an annual or a one-time dividend or buy back shares are sure to multiply now that Steve Jobs no longer runs the company. His opposition to paying a dividend had always been enough to sway Apple’s board. Without Jobs, opposition to a dividend is much weaker.
Paul Ausick
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