Apple Call: What Dividend and Buyback Program Will Achieve

Shortly after announcing its first dividend since 1995, Apple AAPL held a conference call with analysts to provide more detail on the program is expected to achieve for the company. Apple is expected to spend $45 billion in "domestic cash" to issue a dividend of $2.65 per share as well as kick into gear a share repurchase expected to average $2.5 billion per quarter. Petter Oppenheimer, Apple's CFO, noted that the announced program was designed to reach found objectives. First objective was said to be the maintenance of flexibility when it came to business opportunities as they arose. Second, Apple wants its long-term shareholders to have some current income. Third, Apple would like to attract a wider investor base, namely, investor classes aimed at dividend stocks. Apple's final goal with its announced program is said to be the elimination of share dilution that arises from its employee equity programs. The first element of the program, the $2.65 dividend, would begin in Apple's September quarter, and would be concurrently recorded with the company's July earnings release. Apple's board has amended its bylaw pertaining to Restricted Stock Units (RSU) so that they could partake on the announced dividend. Oppenheimer noted that Tim Cook, holder of a notable portion of RSU's, would not participate on the distribution, at his request. Based on RSU's and shares outstanding, Apple expected over $10 billion going out in dividends in the first year alone. On share repurchases, Apple said it would spend another $10 billion, starting in fiscal year 2013, expected to continue over three years. The primary purpose for this buyback, Oppenheimer said, was to neutralize dilution from future equity grants and employee stock programs. Approximately 4 billion dollars are expected to be consumed in this way for the first year, which starts on September 30, 2012. All in, the company was expected to consume approximately $45 billion of its domestic cash for the duration of the announced three-year period of the program. Asked by a Barclay's analyst on whether the company anticipated growing this just-announced dividend in the future, Oppenheimer hinted that while the company would review dividend size periodically, it saw no need for such growth currently. "We expect our dividend payments to be over $2.5 billion per quarter, or more than $10 billion per year, which makes us one of the highest dividend payers in the United States." Oppenheimer noted that the company intended to maintain adequate domestic cash on hand to be able to jump on business opportunities that would arise. To this point, Oppenheimer stressed that the company did not want to incur the tax cost associated with repatriating cash currently sitting outside the US. Which, Oppenheimer noted, was over 65% of all Apple cash holdings as of the end of 2011. Oppenheimer's replied to a Morgan Stanley analyst inquiring on the prospect of repatriating foreign cash saying that current tax laws were unfavorable for cash repatriation due to significant tax consequence. Oppenheimer made it known Apple is in close contact with regulators attempting to affect a change in such regulation. A stock split was notably missing from the other rumored components ahead of the announcement. Asked by Gene Munster of Piper Jaffray on the topic, CEO Tim Cook said the board found stock split to offer very little support to shares for the time being. That said, Cook kept the door open for such a measure in the future, if it indeed provided an advantage for Apple's shareholders. Finally, CEO Tim Cook was adamant that the company's growth was nowhere close to seeing a ceiling any time soon. He pointed to tremendous iPhone and iPad sales, and backed up a continuing trajectory for both given expansion of respective markets for both. The Macintosh division was also seen as continuing its growth, despite the fact that tablets were expected to overtake PCs in terms of market share. Cook reinforced the Mac outlook that market share remained below 6% while Mac continues to outperform PCs for 23 consecutive quarters. AAPL is currently trading at $593.20 up 1.3 percent on Friday's closing.