Friday, March 7, 2014
By PETER SVENSSON/The Associated Press
(Continued from page 1)
Apple is offering to pay $3.05 per share in dividends as the company prepares to pay investors for the first time. The stock price still slid 0.7 percent Tuesday.
The Associated Press
Apple started paying a dividend last summer and has been buying back a modest number of shares, enough to balance the dilution created by its employee stock option program but not to make a dent in its cash pile. The company says it's now expanding the buybacks, which started in October and are set to run until the end of 2015, from $10 billion to $60 billion. It's raising the quarterly dividend starting with the payment due May 16.
The company has faced continued pressure from Wall Street over the use of its cash, which earns less than 1 percent in interest. Investors reason that if the company has no better use for the money, it should be handing it over to shareholders. The company had said it was considering ways to use the money, and this year engaged in a public debate with a hedge fund manager who wanted it to institute a new class of shares to attract dividend-loving investors.
When a company starts doling out its cash to shareholders, it's usually a sign that its growth is stalling and it's finding it hard to identify good ways to invest in its own business. But Apple is still growing fast by the standards of large companies, and its cash pileup is a reflection of the extraordinary success of the iPhone.
Compared to its earnings, Apple's stock price is low. In buying Apple stock, investors are paying $9.20 for every dollar of Apple's annual net income. By comparison, they're willing to pay $24 for every dollar of Google's profit.
That suggests investors have concluded Apple will never again launch a revolutionary new product like the iPhone or iPad. The commitment to bigger buybacks may reinforce that impression, said David Tan, a Georgetown University assistant professor of strategy who focuses on technology.
"How are we going to read into what this move says about Apple's long-term prospects?" Tan said. "Does this mean this is all that Apple has left to offer or is this just something temporary while we wait for the next big thing from the company?"
For now, it seems clear Apple's well of innovation has temporarily run dry, but that doesn't mean it won't be replenished soon, Tan said. "What no investor can see is what is happening between closed doors in research and development," Tan said. "R&D is always very secretive. It always takes a very long time between the inception of an idea and commercializing a product."
Investors have grown increasingly frustrated with Apple. The company has only been releasing updates to its existing line of mobile devices and computers since Cook became CEO 20 months ago instead of blazing new technological trails as it did with the iPod's 2001 unveiling, the iPhone's 2007 debut and the iPad's introduction in 2010, said Lauren Balter, an analyst for Oracle Investment Research. At the same time, Samsung Electronics has been gaining market share with larger smartphone screens and other features while Google is creating a buzz with its own Nexus tablets. Google is also expanding into "wearable computing" with Internet-connected glasses that are expected to go on sale late this year or early next year.
"The market is tired of the same old thing at Apple," Balter said. "Investors are looking for innovation. The reality is that people are looking at other products now and they are looking at other cool features from competitors."
Apple is rumored to be working on a "smart" watch and a revolutionary TV set, but it hasn't confirmed that. On Tuesday's call, Cook sounded slightly more open to making an iPhone with a larger screen, saying merely that Apple would not ship a phone with a larger screen as long as that meant tradeoffs in other measures of screen quality, like brightness.