The iDividend: Apple news highlights the importance of dividends
It wasn’t as breathlessly awaited as the latest iPad or iPhone, and money managers didn’t camp outside Apple Inc.’s investor relations department in sleeping bags.
But investors may come to appreciate the iDividend as much as they do the company’s electronic wizardry.
Apple announced Monday that it will pay $2.65 per share each quarter, beginning in the fiscal fourth quarter starting July 1. It also will launch a three-year share buyback program.
The introduction of quarterly payouts is not only a turning point for the company. It also vividly illustrates the importance that investors place on dividends in today’s uncertain stock market.
During the lengthy bull markets that dominated much of the last three decades, investors were willing to put up with dividends that were meager by historic standards. Companies argued that the payouts were tax-inefficient and that investors could benefit more if companies pushed up stock prices by plowing their cash into research, acquisitions and share buybacks.
The punishing bear market that struck from late 2007 to early 2009 replaced blind faith with the bird-in-the-hand rule: Investors want guaranteed cash payouts four times a year.
The introduction of the dividend could help Apple’s stock price by making the shares appealing to a broader swath of investors – primarily aging baby boomers who need steady income in their retirement years. Dividend-focused mutual funds, the big rage this year, are likely to scoop up Apple shares.
And though it’s blasphemous to countenance this is in financial and technology circles, the dividend could cushion any drop in Apple shares if and when the company’s remarkable run of success slows.
Even before Monday’s announcement, Apple’s stock had surged 45% this year. It’s up about 2% today, hovering just shy of $600.
Some money managers point out that what had been a dramatic run-up in the stock in the last two years – it was at $85 at the end of 2008 – has turned parabolic this year.
History suggests that at some point every company – and every stock – returns to earth. If and when that happens to Apple, investors could appreciate having a dividend to fall back on.
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