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Would Apple, Inc. Stockholders be Better Financially if They Received Dividends Annually - Research Paper Example

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Apple Inc, one of the largest consumer electronics firms in the world has the history of not paying the dividends. Over the period of time, it has been a trend in the technology oriented firms that dividends are not paid and investors largely bet on the growth potential of such firms. …
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Would Apple, Inc. Stockholders be Better Financially if They Received Dividends Annually
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Download file to see previous pages Investors invest their money on the assumption that though dividends may not be paid for considerable period of time, the capital appreciation due to growth will significantly justify the non-payment of dividends. The overall direction set up by Steve Jobs for Apple was based upon not paying the dividends and to accumulate a hoard of cash which can be subsequently utilized in terms of making investments into innovation. As a result of this policy, Apple went on to accumulate a large quantity of cash, the returns on which were relatively low and was considered as a drag on the returns on equity for the shareholders of Apple. One of the key reasons as to why Steve Jobs consistently pursued this policy of not paying the dividends is also based upon the fact that Apple barely avoided bankruptcy in 1997 thus Jobs was focused upon maintaining a large pile of cash which can potential avert any possibility of bankruptcy in future. (Shontell, 2011) Apple Inc, however took a new turn and announced that it will be sharing billions of dollars in dividends to the shareholders. This move has been considered by many as a radical shift from Job’s legacy. ...
In order to avoid any such mishap in future, Jobs therefore focused upon piling up cash and neglecting paying the dividends to shareholders. Apple declared its first ever quarterly dividend in 1987 amounting to $ .12 per share however, at the same time, Apple also announced a 2 for 1 stock split too. Subsequently, however, Apple experienced losses and it became a less competitive player in the market. Due to this sliding, Apple gradually reduced paying the dividends and finally stopped to pay the same to its investors despite making a promising start in the early years of its establishment as a leading PC maker in the world. Recent Announcement of Dividends After the lapse of many years, Apple recently announced that it will start paying a quarterly dividend and will spend $45 billions in the next three years in terms of dividends as well as share buy backs. The recent announcement to pay quarterly dividend however also came with the offer of stock buy back thus signaling that Apple Inc might focus on reducing its outstanding shares in the market. (Satariano, 2012) Over the period of time, the cash pile up accumulated by Apple Inc was attracting low interest rates. In an economic environment where interest rates are relatively low thus keeping cash reserves as high as over $100 billions was considered as an imprudent financing decision. Investors therefore were of the view that hoarding such large amount of cash was actually a drag on the return on equity of the shareholders. The recent announcement therefore seems to be an effort towards listening to shareholders and provide them some sort of return in terms of dividends. However, the cash used for the share buy-back as well as dividends ...Download file to see next pagesRead More
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