Apple Inc. plans to begin paying shareholders a dividend and repurchasing company shares while maintaining its robust growth – an impressive undertaking for even the world’s most valuable company.
Apple plans to begin paying a quarterly dividend of $2.65 a share on July 1, the start of its 2012 fiscal fourth quarter, according to a statement released by the company yesterday. The news coincided with second Apple statement announcing the company had sold three million of its newest generation iPad computer tablet since its release last Friday. Philip Schiller, senior vice president of worldwide marketing for Apple, described the latest iPad as a “blockbuster” generating the strongest launch yet.
Apple also plans to begin buying back $10 billion in shares on Sept. 30, the start of is 2013 fiscal year. The company is in a strong enough financial position to return profits to investors while maintaining its robust growth, according to Tim Cook, Apple’s chief executive officer.
“We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You’ll see more of all of these in the future,” said Cook. “Even with these investments, we can maintain a war chest for strategic opportunities and have plenty of cash to run our business.”
Dividends are typically associated with mature companies, while quickly growing companies generally do not pay out dividends, according to the website Learn Dividends, which explains that “Investors in companies that do not pay dividends earn money only through the sale of shares that have appreciated in value.”
Apple shareholders yesterday saw stock prices top $600 a share in trading following yesterday’s announcements. Now they will have the opportunity from profit from regular cash pay outs, as well. According to Learn Dividends, “The act of paying dividends is frequently considered to represent confidence in the business and is used to reward shareholders. Dividends provide investors with a steady flow of income even when a company is not growing.”
Payment of dividends also helps prevent corporations from accumulating huge cash reserves that might undermine fiscal discipline and lead to decisions – such as excessive compensation or overpayment for acquisitions - that ultimately lower a company’s value, reports the National Bureau for Economic Research.
Dividends can either be taken as cash or reinvested in additional shares, said the Financial Industry Regulatory Authority, or FINRA. Reinvesting dividends can be part of a long-term strategy to build wealth, but FINRA notes that many retirees use dividends to replace job income. According to the authority, stocks that pay higher than average dividends are known as “income stocks.”