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Cook finally shares Apple's $98bn cache

Mar 20 2012 09:12 Reuters

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San Francisco - Apple CEO Tim Cook, moving swiftly after taking over from late Silicon Valley icon Steve Jobs, fulfilled a longstanding desire of investors by initiating a quarterly dividend and share buyback that will pay out $45bn over three years.

The world's most valuable company will start paying its first dividends since 1995 - a regular quarterly payout of $2.65 a share - in July, and buy back up to $10bn of its stock beginning in the next fiscal year.

The $10bn annual dividend programme, which Cook said will be reviewed periodically, ranks among the largest current US corporate cash payouts.

Yet it disappointed some fund managers, given a 1.8% dividend yield that lags the Standard & Poor's 500 average and its modest size versus a $98bn war chest Apple has accumulated selling Macintosh computers and iPhones.

On Monday, the company said it had sold 3 million of its latest, 4G-enabled iPads, setting a first-weekend record for the line of tablet computers.

Cook told analysts on Monday that "making great products" remained top priority, echoing the sentiments of his former boss, who died last October after a long battle with cancer.

Jobs' former lieutenant has impressed Wall Street since taking the helm. He made his mark revealing Apple's production partners and initiating investigations into allegations of labour abuse in its supply chain, and addressing investors directly at this year's Goldman Sachs conference.

But the question of whether the operations maven can envision revolutionary products lingers for some.

"Already we are seeing more openness, and more willingness to address issues on many different fronts under Tim Cook than we had seen in the past," said Connor Browne, portfolio manager of Thornburg Value Fund.

"While all this other stuff is good, there is still some pressure on management to come out with fantastic products over the coming months," he said.

Cook's move came less than a year after he was appointed head of the company and suggested to many a move away from Jobs' era, when a dividend was often mentioned but not acted upon. Under Jobs, Apple maintained that capital preservation was key and the company needed the flexibility of having a cash pile.

Apple shares ended up 2.7% at $601.10, after notching a record of $601.77 just before its close on the Nasdaq.

Different style

When Cook was announced as CEO of one of the most highly recognisable brands, Wall Street feared he lacked Jobs' uncanny vision for ground-breaking consumer electronics. But Apple's shares have gained more than 50% since Jobs' death and set a record above $600 last week as investors noted the assurance with which Cook has taken the reins.

Within company headquarters at 1 Infinite Loop, there remains a sense of urgency despite the success, former Apple executive and venture capitalist Jean-Louis Gassee said.

Cook "was part of what made Apple such a juggernaut when Steve was running the show", Gassee said. "He now follows Steve's advice: don't try to be me, be yourself."

Michael Holt, analyst with Morningstar, said Cook was "putting his own slant on things" but some of the company's core areas, such as product development, have not changed under him.

"The influence of Steve Jobs is very heavy on not only the current products, but also products that are in the pipeline," Holt said. "So it's kind of a balance."

Cook, a former IBM executive and long-time Apple chief operating officer, oversaw the rollout of the iPhone 4S last year and presided over what he said on Monday was a "record weekend" of sales for the new, 4G-enabled iPad.

"Innovation is the most important objective at Apple and we will not lose sight of that," Cook said during the rare late-quarter conference call.

Many investors now await an Apple TV or a similar device: a gadget that will transform an industry the way the iPhone did. On a conference call, one of the first questions that cropped up regarded the product pipeline. Cook declined comment.

"One of the risks with Apple in particular is that they have very little in recurring revenues. Most of the revenue is new sales, which means that innovation is absolutely critical," said Oliver Pursche, manager of the GMG Defensive Beta fund.

"That's one of the reasons that the PE (price to earnings ratio) is so low."

Finally doling out the dividends

Apple joins the ranks of Silicon Valley blue chips that have recently begun doling out dividends, including Cisco Systems, which announced its first-ever cash payout in March 2011. Among major technology companies, Apple rival Google remains a prominent holdout.

Analysts said the initiation of a regular payout would attract a broader investor base, but added that many funds had already piled in on hopes of a dividend, after Cook said this year there were active discussions at the top level about what to do with its $98bn hoard of cash and securities.

"A lot of mutual funds that say they're buying dividend companies had Apple in them. That shouldn't be, but I guess it was obvious that after Tim Cook spoke last time that this was the case," said William Lefkowitz, chief options strategist at VFinance Investments.

Apple expects the share buyback programme to run over three years, with the primary objective to offset the impact of employee stock options and equity grants.

Its annual dividend yield will come in around 1.8%. That ranks above Oracle and International Business Machines but falls just short of the average of around 2.4% for companies in the Standard & Poor's 500 index, analysts say.

The company will still maintain a "war chest" for other strategic opportunities, Cook said. "These decisions will not close any doors for us."

The maker of the iPhone, iPad and iPod has $98bn in cash and securities, equal to about $104 a share.

Apple said it anticipated using about $45bn of domestic cash in the first three years of its buyback and dividend programmes.

Asked about the substantial cash Apple has parked overseas, chief financial official Peter Oppenheimer said the company had no plans to repatriate it at this time.

"The current tax laws provide a considerable economic disincentive to US companies that might otherwise repatriate the substantial amount of foreign cash that they have," he said. "That's our view. And we've expressed it."

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