Dividend Policy - Plan for Apple's Cash - Essay Example

Greenlight Capital’s position according to the report is that there should be higher dividends considering the amount of money available in the company. The news report also cited a clause in the lawsuit, which states that Greenlight is voting AGAINST Proposal 2 in Apple's proxy, which would eliminate preferred stock from Apple's charter. Proposal 2 bundles several proposals regarding how preferred stocks are issued at Apple. Apple responded that the charge is not appropriate, with Greenlight grossly misrepresenting data, which formed the basis for its proposal.

Based on the report, the dividend payment appears to be a form of extra or special dividend, which is paid during a period of high earnings (Chapter 18).  The success of its products, notably the iPhone and the iPad, saw the meteoric rise of Apple’s stock price, peaking at about $700 in September 2012 (Molina). As a result, the company has a lot of cash on hand. Indeed, according to Apple, it is distributing $45 billion within three years (Molina). However, unlike most dividends under this category, Apple opted to follow quarterly payments, which is the most common practice among companies (Chapter 18).

The decision to pay shareholders with dividends was only introduced after Steve Jobs’ death after Tim Cook assumed leadership. Apple has been notorious for its policy of holding out on its cash hoard (particularly during Jobs’ tenure) and refusing to pay dividends to its shareholders. This dividend policy is, of course, justified. Apple has been known to spend much of its cash on research and development. This can also be attributed to the fact that dividend reduces the value of the firm (Chapter 18). Also, dividends are considered to be irrelevant as a policy. The reason for this is that “investors will not pay higher prices for firms with higher dividends because they do not need it to convert shares to cash” (Chapter 18). It was only last year that Apple changed its position when the company decided to pay its shareholders a dividend of $2.65 per share. The last time the company did so was way back in 1995.

Paying dividends, however, is not without its benefits for organizations such as Apple. This is the case, for instance, when there is transparency in the process or an open flow of information in addition to an efficient capital market. It will keep Apple from agency costs and it provides a monitoring device – a sort of barometer for the world and the investing public to know that the firm has value.