Apple’s decision to start both a stock buyback plan and to begin paying out a $2.65 a share dividend was met with criticism by technology watchers.
Before the announcement, Om Malik, founder of the technology and new media website GigaOm, counselled Apple to ignore calls from Wall Street to offer a dividend.
“I, for one, believe the company should just sit on the cash and not worry too much about Wall Street just yet. It is important that they use the cash to lock up supplies of components for its products. The cash cushion gives the company room to actively compete for talent as well as any future startups it might need to acquire to enhance its overall ambitions.”
“I’ve said in the past: stock buybacks are a sign of a company whose management can’t think of anything to do with money. Bad move, Apple.”
“The Apple dividend and stock buy back is probably the first decision Tim Cook has made that Steve Jobs would not have allowed.”
Instead of the buyback and dividend, he said that the company could have used its significant cash reserves to buy Twitter, or payments startup Square, iPad news aggregator Flipboard or social network Path.
Apple makes its case
Apple said that it was initiating the $10bn stock buyback programme to neutralise “the impact of dilution from future employee equity grants and employee stock purchase programs”.
Apple CEO Tim Cook said that the dividend and buyout will still leave the company with a large war chest for opportunities. “These decisions will not close any doors for us in terms of innovation,” he told investors on a conference call.
This means that Apple will still have enough cash on hand for acquiring new companies and to fund its research and development plans.
Apple CFO Peter Oppenheimer said that paying a dividend would increase the appeal Apple stock. Most funds won’t buy stock that don’t pay out a dividend he said.
Most companies only begin offering a dividend when their growth has slowed to sweeten the deal for new investors. However, Apple continues to rocket ahead. Oppenheimer said that the company generated $31bn last year, of which $16bn came in the last quarter alone. A lot of its more than $100bn cash mountain, some $64bn, is outside of the US, and the Apple executives did say that they were talking to the US government about disincentives about bringing that cash back into the US. The stock buyback scheme and the dividend will be paid out of funds in the US without having to repatriate any of its overseas funds.