Tuesday, 20 March 2012

Stock update: Apple resumes dividends for first time since 1995.

Apple @ $601.10, +$15.53 (+2.65%)

Interesting to see the reaction to Apple's announcement that it will resume dividend payouts for the first time since 1995.
It has been much anticipated but combined with a share buyback program amounts to a return to shareholders of around $45bn (£28bn), over the next 3 years. 
This will start sometime in the fourth quarter (July - Sept) with the resumption of a quarterly dividend of $2.65 followed closely by the $10bn share buyback program forecast to start in September.

Interesting for me is that Apple's shares rose on the widely expected news (there isn't too much about Apple that is unexpected these days), despite our often being a little programmed to view paying dividends as a signal that a company has gone ex growth.
This isn't always the case but it is a rare thing to hear a company saying that we have nothing that we want to do with the cash so are returning it to shareholders.
The other factor analysts seem to be focussing on is that by paying a dividend the company is now accessible (under their investment criteria) to many more pension and income funds but, if fund buying was to happen, surely that would only be a short term "technical" boost to the share price.

Anyway, depending on what returns the company makes in the next 3 years this would represent around half of the currently reported cash figure of $98bn. But, underlying that was an annual increase of $38bn which if it can keep that up will see this most liquid of assets continue to grow.

"Apple's largest shareholder, Fidelity Management, will earn $128.8m each quarter from the dividend, based on its holdings as of December 31. Vanguard Group, the second-biggest shareholder, will receive $98.5m and State Street Corp will get make $92m."
Those are handsome quarterly returns and it would be interesting to know what the value of their original investments were and how the quarterly/annual dividend compares to that.

On a slightly more cautious note as reported in the Guardian (http://www.guardian.co.uk: Apple shares cash pile as it launches dividend and share buyback scheme ):

"Apple passed the $500bn mark at the end of February, and Gillis calculates that so far the six other firms to reach that mark have lasted 90 to 180 days above that level."

So between them the issuing of the dividend and the share buyback might actually help to keep the capitalisation from getting too stratospheric. 
It should also be noted that inflation has that sinister way of making seemingly big numbers relatively small after a few years so there will come a time that $500bn no longer seems such a challenge to maintain.

At $2.65 a quarter, the forecast yield for a full year would be 1.76% against the current share price of $601.1.
However, we know that anything could happen to the share price and the dividend with such a fast moving story although you would anticipate that if the company continues to be successful and maintain its margins the dividend payout could have a significant way to go.

Not as enamoured of the share buyback program but as reported in the Daily Mail (http://www.dailymail.co.uk: Apple downloads £63bn for investors with company paying first dividend since 1995)
 "Apple will also start a $10bn buyback of its shares to counter the impact of its employee share schemes which have diluted the stock."

So I can at least see a purpose in it to maintain existing shareholders entitlements.
Not surprisingly Apple has been the only holding in my portfolio not issuing a dividend but has delivered a capital gain of over 210%.
The reinstatement of the dividend is an exciting new chapter for the company and its investors but I wouldn't be looking to buy into Apple on tha back of this.
Instead with the recent launch of the latest Ipad estimated to have achieved sales of 3 million units in 3 days across the 10 countries that it has been launched in, lets hope that overall this success story continues to run and run even with the change in the balance of shareholder returns (capital and dividends).

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