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Apple's big payout whets appetite for more Add to ...

Apple Inc. ’s new $10-billion-(U.S.)-a-year dividend is more than just a big-money payout from a big-name stock. It spotlights a key conflict in today’s market: Companies’ growing mountain of cash versus investors’ growing hunger for a piece of it.

With cash stockpiles at U.S. non-financial companies at a record $1.24-trillion at the end of 2011, according to Moody’s Investors Service, and interest rates at historical lows, investors increasingly see dividend payments as a key source of returns. Yet companies coming out of the recession have been wary about committing cash to shareholders. Apple, with nearly $100-billion of cash on hand and no dividend, had become a highly visible emblem of the battle.

With Monday’s dividend announcement, it gave shareholders a key victory – at least symbolically – market strategists said.

“There’s an awful lot of cash on the books of these companies, and shareholders have been calling on them to do something with it,” said Sam Stovall, chief equity strategist at Standard & Poor’s in New York. He said he expects other cash-rich companies will follow Apple’s lead – “not because they’re lemmings, but because it’s what shareholders are asking them to do.”

Mr. Stovall said the 2008-2009 bear market – the second in less than a decade – has heightened investors’ awareness of dividends as a driver of portfolio returns. He noted that while the S&P 500 is down slightly since the beginning of 2000, its total return (which includes dividend payments) is 16 per cent. Meanwhile, the total return of the best-quality dividend payers – the so-called “dividend aristocrats,” companies that have raised their dividends every year for at least 25 years – is 155 per cent.

“People are seeing that high-dividend-paying stocks, and high-quality stocks, are the only thing that kept them afloat since 2000,” he said. “Investors are now keenly aware of that.”

By historical standards, companies have plenty of room to increase their dividends. Mr. Stovall noted that S&P 500 firms are only paying out 34 per cent of their available cash flow in dividends, well below the long-term average of 51 per cent.

Apple’s move Monday may put pressure on other big-name technology stocks to either initiate dividends or increase their payments. A report last week from Moody’s found that the tech sector accounts for 31 per cent of all cash on U.S. corporate balance sheets, and that tech firms make up more than half of the 20 most cash-rich U.S. companies. Yet three of the biggest names – Google Inc., Yahoo Inc. and Dell Inc. – still pay no dividend. With its announcement, Apple jumps above the likes of IBM Corp., Cisco Systems Inc. and Oracle Corp. in terms of dividend yield (annual dividend as a percentage of stock price).

Tech-sector analysts believe Apple’s decision has turned up the heat on Google to initiate a dividend of its own. Google is sitting on nearly $45-billion in cash, making it now the most cash-rich company on the S&P 500 to not pay a dividend to common shareholders.

But some analysts said Apple’s situation was unique. “It’s not that [Apple is] running out of opportunities; it’s just that they’re bringing in more cash than they can use,” said analyst Abhey Lamba of Mizuho Securities USA Inc. in New York. “Apple had become so big, it had to find a way to increase its investor base and incentive to buy the stock. For most of those other [big tech]companies, that isn’t the case.”

Experts also noted that many technology firms don’t have access to as much cash as their balance sheets suggest. The Moody’s report noted that 57 per cent of all the cash on U.S. balance sheets is held overseas – with prohibitive tax implications if those companies were to repatriate it to fund dividends. For many tech giants, the overseas component is particularly high: Apple has 66 per cent of its cash outside the United States, Oracle has 75 per cent, and Cisco and Microsoft Corp. both have 89 per cent.

“Savvy investors understand these limitations,” said Richard Lane, one of the authors of the Moody’s report. “I don’t know if there’s going to be that big of an impact [from the Apple dividend]on other companies, quite frankly.”

Top 10 cash-rich U.S. companies (millions of U.S. dollars)




Cash & cash equivalents

Liquid short-term & long-term investments

Total cash



Dec. 31/11






Dec. 31/11




Cisco Systems


Jan. 28/12






Dec. 31/11






Dec. 31/11




Johnson & Johnson


Jan. 1/12




General Motors


Dec. 31/11






Nov. 30/11




Ford Motor Co.


Dec. 31/11






Dec. 25/11




Source: Moody’s Investors Service

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