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The Google logo is seen at the Google headquarters in Mountain View, California.
Google just announced first-quarter earnings, and they were solid, beating expectations and quickly reversing a negative trend from last quarter, when Google missed expectations. But what's more important is an announcement that, like Apple, Google is planning to return some of its rather large cash hoard to investors. And what's interesting is how Google intends to do it.
[UPDATE: A commenter, "Finance Gourmet," points out that this isn't a return of cash to shareholders, but the creation of a new class of non-voting stock distributed as a dividend. Correct! I thought Google was going to underwrite these shares out of cash, but on that front I was...confused! by the Drummond note. In fact, this whole thing is really more about retaining voting control of the company than it is about dealing with the cash issue. However, it is a reward or sorts for shareholders.]
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Apple CEO Tim Cook speaks during an Apple product launch event at Yerba Buena Center for the Arts on March 7, 2012 in San Francisco, California. Today, the company announced its first dividend since...1995!
Apple announced this morning that, in response to various levels of pressure, it will be dispersing some of its $100-billion cash hoard by paying a $2.65 quarterly dividend to shareholders, starting in 2013, and buying back $10 billion worth of stock. These were both fairly conservative, but far from unexpected, moves. As soon as Apple announced that it would be...making an announcement, some kind of dividend scenario was in the picture. The questions were along the lines of "How big?" and "Will it be a one-time dividend?"
Apple's stock, not surprisingly, is waaaayyy up in trading this morning, currently humming along just a hair below $600. Actually, it's been headed almost straight up since last December. And it could have been set up by Apple CEO Tim Cook and CFO Peter Oppenheimer to move higher, but they went for a relatively small dividend: 1.8 percent versus what Apple's biggest Wall Street bulls wanted, something like 2.5 percent.
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Apple Store customers look at the new Apple iPhone 4Gs on October 14, 2011 in San Francisco, United States. The new iPhone 4Gs features a faster dual-core A5 chip, an 8MP camera that shoots 1080p HD video, and a voice assistant program.
The bigger Apple gets, the more pressure it comes under to share some of the wealth. With a cash pile now approaching $100 billion, the idea of a one-time dividend is being floated. This is from Therese Poletti at MarketWatch:
“Instituting a regular dividend would be a signal of a new maturity in the way the company views itself,” [said management professor James] Post.... “That would be a much bigger statement of change for the company. I think there is probably a debate going on.” And the ghosts of CEOs past are clearly in the room.
Post said a special dividend could be an interim solution for the company. “If they want to they can always come back in a year or two or three, they can do it again, but they are not committing themselves to a regular dividend,” he said. “It would be seen as a pretty big departure from the Jobs era.” It’s a tactic used by Microsoft in 2004, when it announced a one-time dividend of $3 a share, to use return some cash to investors.
A one-time dividend is obviously not very popular among most investors.
“I think that Apple’s stock is and should be like Apple’s sales and products, insanely great,” said individual shareholder King Lear, who spoke up at the company’s annual meeting last year. “Defined quarterly dividends would increase the value of the stock in addition to its incredible capital growth.”