updated 06:10 pm EDT, Mon March 19, 2012
Stock reaching further in after-hours trading
Another significant milestone was reached today as Apple's stock (AAPL) closed over $600 for the first time ever, though it has hit that mark in intra-day trading on recent occasions. Investors reacted strongly to the news this morning that the company would begin paying a dividend on stock for the first time since 1995, starting in the July quarter. Hints and finally confirmation of explosive sales of the new iPad also helped push the stock up.
The stock had already jumped up more than $10 since close on Friday on the announcement that the company would reveal its plans on Monday. During a conference call today, CEO Tim Cook and CFO Peter Oppenheimer outlined plans for a $2.65 per share dividend, along with a plan to buy back $10 billion in shares over the course of three years, including $4 billion to be spent on buying back stock during the next fiscal year.
A stock buyback program is usually initiated by companies that believe their stock is (or soon will be) undervalued. Apple has undertaken buyback programs before, most notably in late 1999 when the company authorized up to $500 million to be spent on stock buybacks, though it only ever spent $213 million (buying 13.1 million shares at an average $16.26 per share) on the program.
Former CEO and co-founder Steve Jobs, who returned to Apple during its greatest financial crisis, often defended the company having a huge cash hoard in reserve, saying it gave Apple the ability to fund acquisitions by "writing a check," saving enormous borrowing fees, as well giving the company a secure financial base that allowed it to take bigger risks. He believed dividends and stock buyback programs would have little positive effect on the stock, and may also have believed that the cash would kill off any attempts at buyout offers or hostile takeovers.
The last time Jobs spoke publicly on the cash reserves, however, was in early 2010 when the reserve was only $40 billion in size and the stock at $200. With Apple's cash now nearing $100 billion and the stock having tripled since then, Cook was forced to acknowledge that Apple had "more money than it needed to run the business" while still wanting to keep a healthy reserve for acquisitions, flexibility and a hedge against future economic downturns.
Apple's success in growth during the most recent recession is widely credited to having the funds needed to keep R&D and marketing budgets growing, a technique Jobs once described as "innovating our way" out of sour economic conditions. Apple's reserves were also used to launch the retail store chain, which involved large infrastructure expenses before the stores had a chance to become profitable.
At the company's current level of sales, the investment of $45 billion in dividends and buybacks could easily be paid for with the profits made over the course of 2012. In addition to the three million third-generation iPads sold this weekend, Cook mentioned that Apple had sold over 55 million of the previous models in just under two years. A number of analysts believe that Apple will sell around that many again in fiscal 2012 alone.
The new iPad was helped by a larger group of countries selling the product at launch, along with a new lower price on the iPad 2 for budget buyers and pre-sales that built up first-weekend numbers. The new iPad's first three days saw it outselling most other competitors' yearly totals, and selling half as many in one weekend as the Kindle Fire (not a direct competitor but seen as the most popular Android tablet-like device) sold during the entire holiday quarter of 2011. The new iPad has won universal acclaim for its new standard in display quality, LTE support and significantly faster graphics.
The outlook for the company is very strong, with Cook promising new products in the pipeline. Presumably, this will include expected refreshes of the MacBook line, a possible new Mac Pro later this year, improved sales of the recently-upgraded Apple TV, a possible HDTV set forthcoming, and an expected iPhone and iPod refresh in the fall.
Already the most valuable publicly-traded company on earth, Apple is set to increase its fortunes, as all but the music-player market is far from saturated and offers plenty of room for growth for the company. The stock is up over $604 at least check in after-hours trading.