In agreeing to pay $35 billion in dividends, Apple Chief Executive Tim Cook was sending Wall Street a message: It’s my company now.
Steve Jobs, Cook’s predecessor and Apple’s co-founder, hated dividends. To him, Apple profits should be plowed back into the development of mind-bending new products, and shareholders would reap the benefits as the stock value rose.
Cook, on the other hand, is siding with Wall Street investors who have long believed the company was only as strong as its last product. They prefer mature companies like Apple to pay regular dividends, so that even if the shares aren’t screaming higher — Apple shares have risen 48% this year — a dividend gives big institutional investors and others a reason to buy and hold the stock.
Jobs, who revived Apple from near-bankruptcy in 1997, may have never gotten over his fear of the company’s cratering, analysts said. Jobs, who died in October after a long battle with cancer, was never one to coddle shareholders anyway. He regularly said he cared little about the stock price, and in 2010 when forced to admit there was a flaw with the iPhone 4’s antenna, he apologized to customers but refused to express contrition to stockholders.
“Steve’s attitude rightly or wrongly was that investors were a necessary evil,” said Charlie Wolf, an analyst at Needham and Co. “They just got in the way.”
Analysts aren’t surprised that Cook is the one who made the break. Jobs was always more of an entrepreneur and marketing whiz. Cook, a business school graduate and an executive known for his attention to operational efficiency, is more respectful of the mainstream financial world.
“Tim is generally much more open to input,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. “He meets with investors on a regular basis.... You could own several billion dollars’ worth of Apple stock and never meet Steve Jobs.”
Jobs did call one billionaire, Berkshire Hathaway founder Warren Buffett, to ask what Apple should do with all its cash. But after Buffett recommended stock buybacks, Jobs still decided to sit on the cash.
“He didn’t do anything,” Buffet told CNBC’s Squawk Box in February. “He just liked having the cash.”
Still, Jobs was no doubt aware that his giant cash hoard was a growing problem for investors who believed a huge pile of money was not good for business. It earned less than 1% interest, made the stock less attractive to investors looking for a dividend, and left the door open to Apple’s making a huge and potentially disastrous acquisition.
Apple’s cash stockpile has grown rapidly even since Cook took over for Jobs early last year. Apple generated about one-third of its $98 billion in cash during its last fiscal year, following record sales of its iPhone and iPad mobile devices. In its most recent quarter alone, the company collected $16 billion in cash.
As the war chest ballooned, Cook said on a call with investors Monday, Apple “thought very deeply and very carefully” about what to do with the cash. The company settled on a combined $45-billion program of quarterly dividends and stock buybacks. Investors will receive a dividend of $2.65 per share each quarter.
“Founders tend to want to build massive safety nets wherever possible,” said BGC Partners analyst Colin Gillis. “It’s part of their DNA. Tim Cook has more of the operational angle. He realizes $100 billion is more than enough to run the business.”
Wall Street seemed to agree, as Apple’s stock shot up 2.65%, or $15.53, to $601.10 during regular trading, and edged up further in after-hours trading. With a market value of $560 billion, Apple is the world’s most valuable company, and many investors believe its stock price will rise past $700 in the coming months as it introduces new and improved consumer devices.
On Monday afternoon, Apple announced it had sold 3 million units of the new iPad in its first three days in stores, a far faster start than the previous model. The device could soon catch the iPhone as Apple’s bestselling product.
Gautam Godse, a shareholder, said he was pleased about the extra cash he’ll earn from the dividend. He bought Apple stock a decade ago with money he earned appearing in a commercial for Apple computers.
“It was a time when Apple was down and all my friends called me a fool for putting my money into Apple,” recalled Godse, now a 42-year-old blogger and product manager at a Los Angeles technology company. “Now I call my friends who laughed at me in 2001 and I just smirk.”
So what will he do with the dividend?
“Probably get some iPads,” he said.