3:06pm

Mon March 19, 2012
All Tech Considered

Flush With Cash, Apple's Gains Show Few Signs Of Slowing

Originally published on Tue October 16, 2012 3:39 pm

At the end of 2011, Apple had a very enviable problem. It's not too many companies that have more cash than they know what to do with, and for the electronics giant, that amounted to nearly $100 billion burning a hole in its pocket.

So it certainly pleased current and potential investors when Apple announced that, for the first time since the mid-1990s, the company will start paying a dividend.

To appreciate the scale of Apple's conundrum, consider that in the last three months of 2011, the company was generating more than $1 billion in profit free and clear each and every week.

By the end of the year, it had enough cash on hand to buy Goldman Sachs outright; even after that it would have had almost enough cash left over to buy General Motors as well.

It's not that Apple has not been spending — it has. But over the past few years the company has spent several billion dollars locking down critical parts and supplies for the iPhone and iPad. It spent several hundred million buying the company that created Siri, the voice command program on the iPhone, and a couple of other small startups.

Apple also spent aggressively opening dozens of new stores around the world.

"Even with these investments we can maintain a war chest for strategic opportunities and have plenty of cash to run our business," Apple CEO Tim Cook said on a conference call Monday. "So we are going to initiate a dividend and share repurchase program."

Boon For Investors

Starting later this year, Apple will spend about $5 billion annually buying back its existing stock. This stock buyback program is relatively small, and really just intended to offset any new stock that Apple gives out to its employees.

Apple will also begin paying a dividend of $2.65 a share this summer. That will cost the company about $10 billion in cash each a year.

"It really opens the stock up to a much broader group of investors, principally value- and dividend-oriented mutual funds," says John Lutz, who has helped manage a mutual fund that's been invested in Apple for years.

Apple's stock price has been rising so fast that a lot of institutional investors like Lutz can't really buy any more.

"It's a problem a lot of growth managers have," he says. "For us they are simply capped out in terms of how large a position Apple can represent in their portfolio."

The idea being that it is too risky to put all your eggs in one basket, even if the basket is named Apple.

But by paying a dividend, a whole new group of institutional investors can start buying this stock. These are folks who cater to retirees and other people who need to earn some income from their investments.

Peter Oppenheimer, Apple's chief financial officer, says the company will soon pay out more than $2.5 billion to investors every quarter, which he says would make Apple "one of the highest dividend payers in the United States."

No End In Sight

As a percentage of its earnings, however, Apple is paying less in dividends than other technology giants like Microsoft and Intel. Most analysts expect the cash to keep piling up, and by the end of the year it's likely that Apple will have more than $100 billion stashed away in offshore accounts.

Cook said Apple had a record-breaking weekend of iPad sales, and later in the day Apple announced it had sold 3 million of the new tablets since their launch on Friday.

Apple's stock price is up tenfold in the past six years. And it's up because, as fund manager Lutz says, "they have been absolutely knocking the cover off of the ball."

Lutz says the news that the stock will begin paying dividends is just a cherry on top of the Apple pie.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel. Apple, the world's most valuable company, has announced that it's going to share the wealth. For the first time since the mid-1990s, the company will pay a dividend to its shareholders. Demand for iPads, iPhones and other iProducts has been so strong that by the end of last year, Apple had amassed a cash hoard of nearly $100 billion.

NPR's Steve Henn reports investors have been clamoring for a dividend and were happy with the news.

STEVE HENN, BYLINE: Apple had an enviable problem. It's not too many companies today that have more cash than they know what to do with.

PETER OPPENHIEMER: In fiscal year '11, our cash increased by $31 billion.

HENN: Peter Oppenhiemer is Apple's chief financial officer.

OPPENHIEMER: During the first quarter of fiscal year '12, we generated another $16 billion.

HENN: To appreciate the scale of Apple's conundrum, consider this: In the last three months of 2011, Apple was generating more than a billion dollars in profit, free and clear, each and every week. By the end of the year, it had enough cash on hand to buy Goldman Sachs, outright. And even after that, it would have had almost enough cash left over to buy General Motors, too.

It's not that Apple hasn't been spending; it has. Over the past few years, Apple spent several billion, locking down critical parts and supplies for the iPhone and iPad. It spent several hundred million, buying a couple small start-ups. And it spent aggressively, opening dozens of new stores around the world.

TIM COOK: Even with these investments, we can maintain a war chest for strategic opportunities, and have plenty of cash to run our business.

HENN: Apple CEO Tim Cook.

COOK: So we are going to initiate a dividend and share repurchase program.

HENN: Starting later this year, Apple will spend about $5 billion annually, buying back its existing stock. This stock buyback program is relatively small and really, just intended to offset any new stock Apple gives out to its employees. Apple will also begin paying a dividend of $2.65 a share this summer. That will cost the company about $10 billion in cash each year.

JOHN LUTZ: It really opens the stock up to a much broader group of investors, you know - principally, value- and dividend-oriented mutual funds.

HENN: John Lutz helps manage a mutual fund that's been invested in Apple for years. Apple stock price has been rising so fast that lots of institutional investors, like Lutz, can't really buy any more.

LUTZ: This is a problem a lot of growth managers have. You know, they are simply capped out in terms of how large of a position Apple can represent in their portfolio.

HENN: But by paying a dividend, a whole new group of institutional investors can start buying Apple stock. These are folks who cater to retirees and other people who need to earn some income from their investments. Peter Oppenhiemer, Apple's CFO, says the company will soon pay out more than $2.5 billion to investors each quarter.

OPPENHIEMER: Which would make us one of the highest dividend payers in the United States.

HENN: But as a percentage of its earnings, Apple is paying less in dividends than other technology giants like Microsoft and Cisco. [POST-BROADCAST CORRECTION: Apple's dividend is less than the dividends of Microsoft and Intel.] And most analysts expect the cash to keep piling up. By the end of the year, it's likely Apple will have more than $100 billion stashed away in offshore accounts. And Tim Cook said this morning Apple had a record-breaking weekend of iPad sales.

LUTZ: The stock price is up 45 percent year to date. It's up tenfold over the last six years. And it's up that because they've been absolutely knocking the cover off the ball.

HENN: Lutz says the news this morning that the stock will begin paying dividends is just a cherry on top. Steven Henn, NPR News, Silicon Valley. Transcript provided by NPR, Copyright National Public Radio.

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