Apple Prepares to Pay Out Almost $3B in Dividends

Money

Apple (NASDAQ:AAPL) announced in its fiscal 2014 first-quarter results that a cash dividend of “$3.05 per share of the Company’s common stock” would be paid on February 13 to “shareholders of record as of the close of business on February 10.” However, as pointed out by Daniel Eran Dilger at Apple Insider, investors must have purchased their Apple stock before the market closed on Wednesday if they were hoping to collect this quarterly dividend.

Fortune’s Philip Elmer-DeWitt reported last year that the cutoff date is due to the “ex-dividend” accounting principle. Essentially, this formula ensures that the dividend is paid to whoever owned the stock several days before the actually dividend is paid out. A stock sale takes several days to fully process, hence the cutoff date for qualifying for the previous quarter’s dividend payout.

Per Apple Insider, a dividend payment actually reduces the value of the company, since the dividend is paid from the company’s cash hoard. However, this value reduction is countered by the prospect of future dividend payments, as well as the company’s stock continued appreciation. Apple is also boosting the value of its stock with a share repurchase program.

Apple’s share buyback program has recently come under increased scrutiny thanks to activist investor Carl Icahn’s ongoing campaign to convince the company to expand the program. Icahn’s Proposal No. 10 requests “that Apple commit to completing not less than $50 billion of share repurchases during Apple’s fiscal year ending September 27 (and increase the amount authorized for share repurchases under its Capital Return Program accordingly).”

However, in a preliminary proxy filing recently submitted to the Securities and Exchange Commission, Apple argued against Icahn’s proposal, noting that it has already “demonstrated a strong commitment to returning capital to shareholders over the past two years.” Apple may even become the biggest dividend payer in the S&P 500 index in 2014, according to data from financial information and services company Markit via Forbes. Markit predicted that Apple will pay out $11.8 billion in dividends this year, almost 15 percent more than last year.

Apple noted its record-setting dividend payments in its statement of opposition to Icahn’s proposal. “[T]he Company is one of the largest dividend payers in the world and has the largest share repurchase authorization in history,” said Apple.

In April, Apple announced a significant expansion to its capital return plan, including $60 billion for share repurchases that will extend through 2015. Apple also raised the quarterly dividend that it pays by 15 percent, from $2.65 to the current $3.05 level.

During the June quarter of 2013, Apple spent $16 billion repurchasing its own shares. As noted by analyst Horace Dediu at Asymco, Apple’s investment in its own shares was more than what most companies spend to acquire other businesses. Apple followed that unprecedented share repurchase with another $5 billion stock buyback in the September quarter.

More from Wall St. Cheat Sheet: