Apple's great dividend yawn

Apple has announced its plans for (some of) its cash

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Well, that was underwhelming.

After building a cash pile that could buy the New Zealand GDP for a year, and with around US$1,200 arriving every second, on the weekend Apple (Nasdaq: AAPL) finally announced it was going to do something with all that cash.

Rumours and opinions swirled, including our stab yesterday.

Dividend and a buyback

The announcement, when it came overnight, wasn't exactly earth-shattering. Apple has announced a SU$10 billion share buyback, that will be implemented over three years, and a US$2.65 quarterly dividend.

That $10.60 yearly dividend amounts to a yield of around 1.8%.

The market shrugged off the news, with Apple shares up around 2%. Not bad, but neither a huge cheer nor disappointed sell-off.

Positive news

Okay, so on the positive side, it's at least something. Apple could have done exactly the same thing it's done to date and simply kept the cash. The mountain of money would have kept growing, and investors would have continued to worry about the company's plans (and agitate to get their hands on some of that money).

Paying a dividend and instituting the buyback at least is a signal from the company that it's willing to start returning some cash to shareholders. If the cash keeps growing, it's also possible that the dividend will increase over time.

The cash will keep growing

The dividend and buyback are hardly going to change the cash situation at Apple though. In fact, the incoming cash will still dwarf that being paid out – assuming the dividend remains stable – in the next couple of years. That is, despite this decision, Apple's cash hoard will continue to grow.

My favourite line from the overnight commentary came from Liam Denning in the Wall Street Journal who said '[r]ather than raiding the piggy bank, the company is merely dropping quarters into it at a slightly slower pace'.

One thing to note is that Apple – like many other US companies – has significant cash balances outside the United States. Because of the taxation laws in that country, multinational companies have to pay tax on any cash repatriated into the US – one reason Apple has restricted the dividend so it could be paid out of its US-based cash balances.

With those laws unlikely to change any time soon, and Apple unlikely to bring the money home until they do, the cash could be stranded overseas for a while to come yet. That has raised the spectre of a large overseas acquisition, but that would be a significant departure from the Apple playbook.

A marketing message?

Lastly, the buyback is likely calculated to send a message to the market. In the lifecycle of a technology company, paying a dividend is often interpreted as a signal that the company's best days of growth are behind it. That can send a whole lot of growth-seeking investors out of a company's stock, and lead to a period of share price stagnation of worse.

By combining a dividend and a buyback, Apple is likely telling the market that while it is prepared to start handing cash back to investors, it still believes its shares are good value by effectively buying some for itself.

I would have much preferred a special 'one-off' dividend to a buyback – particularly when shares are at an all-time high. Buybacks are best used when a company's shares are significantly undervalued.

Foolish take-away

The simple reality is that if a company can't use its cash and earn a reasonable return for shareholders, it should distribute that money to its owners. From a company that famously refused to do either, a dividend and share buyback are positive – if underwhelming – signs.

If you are looking for ASX investing ideas, look no further than "The Motley Fool's Top Stock for 2012." In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

More reading

Scott Phillips is a Motley Fool investment analyst. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691)

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »