Apple Walks the Talk: Initiates Huge Corporate Cash Payout

While speculations about the comments on possible buybacks and dividends by Apple CEO Tim Cook had seen Apple’s shares doing better than ever, many were skeptical that these were just ploys to set the market abuzz and the shares roaring. However, Apple CEO Tim Cook has created one of those rare instances where a big corporate actually walks the talk, and has announced that the company would start paying its first dividends since 1995. The move consists of regular quarterly payouts of $2.65 a share starting in July and a buyback of $10 billion would start from the next fiscal year.

However, criticisms of the move are already being made. Fund managers allege that the meager size of the 1.8 percent dividend versus a $98 billion cash hoard does not meet Standard & Poor’s 500 average.

The announcement came with Apple celebrating sales of 3 million of the latest iPads on Monday.

Tim Cook, as the new Apple CEO has been appreciated for many of his actions not limited to investigations into allegations of labor abuse in Apple’s supply chain. Also, departing from Apple’s tradition, Cook addressed investors directly at the Goldman Sachs conference.

The market reaction has been one of increasing trust. Connor Browne of Thornburg Value Fund told the Reuters that “Already we are seeing more openness, and more willingness to address issues on many different fronts under Tim Cook than we had seen in the past.”

While under Steve Jobs, the company focused on maintaining a huge war chest as one of its resource policies, Cooks holds that capital preservation was not of such outstanding importance as to create a stagnant cash hoard and keep sitting upon it. Contrary to the era of Jobs, when dividends ware often hinted at but never actualized, Cook has broken the tradition of more than a decade by agreeing the share the cash pile.

Addressing fears that his style of management would dampen the company’s competitive edge, Tim Cook told the media in a rare conference call, “Innovation is the most important objective at Apple and we will not lose sight of that.”

However, as experts see it, one of the key drivers for Steve Jobs’ insistence upon creating and maintaining a cash pile is that the company has meager recurring revenues and new sales drive the company. If at any critical moment, a project failed to bring in the desired sales, the only defense without making allowances to market pressures would have been a large company war chest.

That Tim Cook is departing from this strategy has made experts speculate that Apple might be poised for products that would ensure recurring revenues and do away with the overwhelming importance of a cash hoard.