Apple Inc. (NASDAQ: AAPL) has enjoyed massive growth over the last decade. It has overcome a near-death experience and transformed itself into the second largest company by market capitalization. Now that its shares have stalled so far in 2011 and now that it has some $65 billion at its disposal (total of cash, and short-term and long-term securities), the calls have started to grow for the company to pay a dividend. Those calls are falling on deaf ears and there is no sign that Apple will institute a payout for shareholders anytime soon.
When it comes to initiating dividends, this is an area that suddenly combines trends for growth investors and value investors alike. It also brings up activist investing, corporate governance, accounting, and tax issues that had not previously been there.
There are lessons to be learned from Apple’s history and from Apple’s technology rivals and peers. 24/7 Wall St. has evaluated the top ten reasons that Apple will not pay a dividend any time in the near future.
1. First and foremost… The company is consistent in saying it has no plans for a payout. The point is made clear in Its 2010 annual report in a section titled “Dividends”… “The Company did not declare or pay cash dividends in either 2010 or 2009. The Company anticipates that for the foreseeable future it will retain any earnings for use in the operation of its business.” We could argue for just how long “the foreseeable future” is, but the company has said the same thing for years.
2. Dividend history does not matter…. Apple actually used to pay a dividend long ago. It was in the early 1990s and then it stopped when the world was being consumed by PC buyers buying Windows for the first time ever. Back then, Apple was just a niche company with a different shareholder base and a different customer base.
3. Two maturing moves at once might not appear to be the best ‘growth’ move… Apple is reportedly planning a new corporate spaceship-like headquarters. The costs of the move and even of building the facility will not eat up anywhere close to all of Apple’s liquidity. Building a mega-office campus with a unique design that houses thousands of workers on more than 100 acres could be argued as the peak of growth even if Steve Jobs said Apple is “growing like a weed.” Perhaps writing a big check to shareholders AND building a massive campus for workers might send the wrong symbol to the investor community.
4. Direct rival history… Microsoft Corporation (NASDAQ: MSFT) is a prime example that Apple wants to avoid. Microsoft has paid both special dividends and had regular dividends. This has failed to generate any extra buzz around Microsoft stock. The attitude taken when Bill Gates returned a huge slug of cash to shareholders via a special dividend was that Microsoft’s best growth days were behind it. This was when the argument came up that “Microsoft is becoming a utility rather than the greatest tech growth story of its time.”
5. Current technology dividend trend… Cisco Systems, Inc. (NASDAQ: CSCO) has become another “avoid” stance for Apple to use as a dividend holdout even if these two companies have little to do with each other. Cisco refused to pay a dividend for years and years and only paid one after the demands could no longer be ignored. How has it worked out for that company? Cisco is in trouble and reorganizing its efforts but Steve Jobs does not want to do this. Do investors care about the 1.5% yield at Cisco? All you need to do is to look at its stock performance to decide that answer. In the Cisco lesson, Apple hopefully knows better than to spend billions and billions simply to buy back stock.