Apple (Nasdaq: AAPL) has finally decided to reward its investors beyond the total return on their shares, which was 77% over the past year, before Monday's markets opened, and 554% since 2007.
Here are five reasons why CEO Tim Cook, 51, decided on this new course for the Cupertino, Calif. developer of the Mac, iPod, iPhone, iPad, iTunes and the iCloud:
1. Apple is swimming in cash.
As Cook said in a Monday call, 'We have plenty of cash to run our business' from the cash flow from selling new products. Holding cash and investments exceeding $97.6 billion looks bad and isn't necessary.
Besides rewarding shareholders, Cook also wants to reward his employees who own stock or have been rewarded restricted stock units. CFO Peter Oppenheimer said there were 17.7 million of these outstanding last quarter alone.
Apple will declare the $2.65-a-share dividend when it announces third-quarter results in July and start buying back shares in October. So each share gets a dividend and fewer outstanding shares means everyone benefits.
Apple has about 934 million shares now.
2. Other companies pay dividends.
Apple now wants to broaden its shareholder base, both Cook and Oppenheimer said. Adding a dividend opens Apple shares to pension and mutual funds that seek dividend growth as well as capital gains.
For years, Apple's technology rivals such as IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ) have paid dividends, although IBM suspended them during its financial crisis.
3. Apple's business is generating cash.
Cook declined to say how many new iPads sold over the weekend. 'It was a record weekend and we're thrilled about it,' he said as he dodged sales questions. Analysts estimate as many as 2.5 million new iPads were sold.
[Read more in '5 Ways to Benefit from the iPad3.']
Given current demand, Apple will keep generating more cash, so telling investors a dividend and buyback is ahead keeps them happy. Cook said the company has 'innovative products' coming.
4. Embarassing circumstances.
Despite the flap over an American Public Radio program, 'This American Life,' which retracted a broadcast about conditions in Chinese factories that have the contracts to manufacture Apple products, Cook hired the Fair Labor Association to conduct a probe of working conditions in China last month.
With directors including former Vice President Al Gore, Apple needs to demonstrate corporate responsibity especially as it's entering the corporate market via the back door: employees of enterprises that use IBM and HP servers are using iPhones and iPads to access company information.
5. Maturity.
Founded in 1975 and incorporated in 1976, Apple is now a 'mature' company as well as a global brand. So paying a dividend comes with the territory, along with a buyback similar to many others in technology, as well as among the Fortune 500.
Apple's initial public offering, after all, was conducted on Dec. 12, 1980 when each share sold for $22. Shares were split in 1987, 2000 and 2005. Cook said Monday he's open to another at some time.
Apple shares traded at $594.80, up $9.23 in early activity.
David Zielenziger is a reporter for International Business Times.
Image courtesy of Flickr user jeroen_bennink
