FAQ: Apple’s dividend

March 20, 2012

Apple did something surprising — but maybe on consideration not so surprising — Monday, announcing its intention to pay dividends to its investors. The move, as The Washington Post reported, is one that the company’s investors have been clamoring for, but not in line with the philosophies of Apple’s late co-founder, Steve Jobs. So what is a dividend and how does it affect Apple? Here are some basic answers.

What is a dividend?: Dividends are payments that companies make to their investors out of the firm’s profits. Investors often get quarterly dividend payments.

How much is Apple paying?: Apple announced that it intends to pay $2.65 per share, pending approval from its board. The company will begin making the payments sometime during the quarter that begins July 1, The Washington Post reported.

Why did Apple choose to do this?: Investors have been demanding a dividend for a while, particularly as it became clear that Apple was sitting on an increasingly large pile of cash — at least $98 billion. Many analysts said the move is welcome and far overdue, and provides investors with a psychological boost.

What else could it use its cash for?: In the past, Apple has used its cash pile to invest in innovation either through a rare acquisition or by investing in its own ideas. The hoard has also acted as a buffer for Apple in rough times. CEO Tim Cook was careful to say that even with the proposed dividend and $10 billion stock buyback program, Apple will be able to “maintain a war chest for strategic opportunities and have plenty of cash to run our business.”

Have other tech companies paid dividends?: Several companies, including Microsoft, Intel and Cisco, pay out dividends at a higher percentage than Apple. According to Bloomberg, Intel’s dividend is around 3 percent, and Microsoft’s program yields about 2.45 percent.

What do other tech companies do with their cash?: Now that Apple has made this announcement, many eyes are on Google, which has not initiated a dividend program. Amazon and Dell are also notable dividend holdouts, the Associated Press noted. Google certainly has several research and development projects going, which could explain why the company has said that it does not “expect to pay any dividends in the foreseeable future.”

What does this mean for me?: Unless you’re an Apple investor, not much.

If you have an interest in the company and it’s actions you could take it as as a sign that Cook is a very different chief executive from Jobs. Apple last paid a dividend in 1995.

Dividend payments can often be a sign that a company is expecting growth to slow, Bloomberg noted, but that’s not the case for Apple. “Apple is unique,” Lee Pinkowitz, an associate professor of finance at Georgetown University told the news service. “It has gotten to that point as a victim of its own success. They have so much cash and are making it faster than they could spend.”

Related stories:

Apple’s $45 billion announcement: What it tells us about the tax code

Apple wants to pay dividends to investors as stock continues to soar

Complaints bubble up about the new iPad

Hayley Tsukayama covers consumer technology for The Washington Post.
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