Apple lays out $45 billion, 3 year strategy to attract new investors and neutralize dilution

As expected, and hinted at by Apple CEO Tim Cook, Apple announced the start of a regular quarterly dividend this morning. They also announced intentions to buy back stock, although the dividend is the bigger news, and drew more questions from analysts on the call.

Apple held a conference call at 6am in their home time zone. That’s 9am for us East Coast people, and more importantly, it’s about the latest you can start a call while still getting all the news out before the stock market opens at 9:30am. So for those of you wondering why Apple held the call so early, its’ all about getting news out into the public’s hands before the market opens.

So what did they say? Here’s a summary of the main points:

• Apple has declared a divided of $2.65 per share starting around July. This, alone, will consume almost $10 billion of cash per year, based on Apple’s current shares outstanding of just over 932 million.
• Apple will also buy back about $10 billion of stock over the next three years. The focus of the buyback is to offset share growth from stock the company issues to employees, and stock that employees buy as part of the employee stock purchase plan.
• Although Apple has almost $100 billion in cash, only about $34 billion is domestic (held in the US). The rest is in foreign markets, and Apple would have to pay heavy taxes on this cash if they were to repatriate it right now. They are trying to convince congress that these US tax policies on repatriated cash are hurting local investments. It seems like a no-brainer to me. Apple doesn’t need to bring the money back home, and won’t if it is heavily taxed.
• Unrelated to the use of cash announcement, Tim Cook did reveal that Apple had a “record weekend”, in vaguely answering a question about the launch of the new iPad.

Dividends opens the door to new investors

In the world of investing, different types of funds have different mandates. Some funds are mandated to only buy dividend-paying stocks. Obviously these funds would not have been allowed to buy Apple stock in the past.

Now that this has changed, it opens the door to new buyers. This is one of the reasons that dividends often result in short term spikes in a stock’s trading price.

On top of this, we can expect demand among these new investors will be hot. After all, Apple is trading at an attractive P/E (price to earnings ratio) of only 14x based on this year’s expected earnings. Given the super strong growth rate of the company, this puts Apple stock in both the “value” and the “growth” camps at the same time. Dividend investment funds love this.

Plenty of room to grow

The $2.65 per quarter dividend means that investors are getting about 1.8% per year. Some analysts suggested that Apple could go up to 2.5%. And I agree with them. But we have to remember that companies who initiate dividends always want to position themselves to look good in the future. So they start slowly. They pay what they know can be easily paid. Then, over time, they increase the dividend.

Apple could even hold its payout ratio constant, and just grow its dividend based upon organic company growth. But if growth slows, and the need for such a huge cash war chest lessens, Apple can continue to grow its dividend by increasing the payout ratio.

While yesterday Apple only briefly passed Exxon to become the most valuable company in the world for a few minutes, today they managed to close that way. Whether they close that way tomorrow or not doesn't matter. Whether they continue to rack up these type of accomplishments or go on to yet again eclipse them, whether they continue to lay, an image of the splendor of Silicon Valley in glory undimmed before the introduction of the microprocessor, doesn't matter.

Today, Apple closed as the most valuable company in the world, by market cap.

And iPhone 5 hasn't even been announced yet.

What on earth is next?

Apple's market cap briefly rose higher than Exxon today, temporarily making Apple the most valuable company in the world.

Whether or not Apple again rises above Exxon, and whether or not they manage to stay that way for a while, it's still a huge milestone for a once-struggling tech company unsure if it could remain in business, let alone surpass the glories of their past.

Congrats, Apple.

I should have bought at Scully...

Digital Daily brings BOOM!ing word that Apple's market cap has just exceeded Google's, at $159.37 vs. $157.56.

Good on Steve Jobs and Apple. And kudos to Valleywag for saying, way back in 2007 that this would happen because "Apple knows how to design not just gadgets, but the businesses that go around them."

We here at TiPb have been marveling at Apple's unique 360 degree spherical integration for a while now as well.

We, like pretty much everyone else in the blogosphere, probably can't help but wonder how Michael "I'd shut down Apple and give the money back to its shareholders" Dell is doing lately? But is all this market cap stuff really anything more than a seriously juicy headline? Any savvy investors reading, please enlighten me on how much more or faster this news, never mind the ever fickle and capricious dice-game that is the current market, will restore our childlike sense of wonder?

CEO Steve Jobs (with a veritable chorus of board members and execs answering backup), took his annual grilling yesterday courtesy of Apple's shareholders meeting.

Among the iPhone related news:

• When asked why Apple doesn't take games seriously enough to acquire their own Halo-class developer (ironic, as Halo was originally intended for the Mac), Jobs highlighted Thurday's iPhone SDK event as opening a new door for Apple gaming.
• With regards to the still languishing .Mac online service -- specifically the possibility of blogging tools -- Jobs responded that we'd see more from .Mac before the end of the year, and with the iPhone SDK, if Apple didn't provide a mobile blogging tool, a 3rd party would be able to. (Then El Jobso kindly suggested the questioner learn Cocao and write the app himself!)
• On the subject of iTunes movie rentals, and why Apple does not yet have the 1000 movies Jobs said would be available by now, the mustache-twirling serial villains at Big Media were handed the blame, specifically the longer-than-anticipated delays in securing download rights for older films before such rights were ever foreseen, much less clarified. (Perhaps next time someone could ask Le Steve about international downloads for those of us outside the USA?)
• Tim Cook, as previously reported, fielded the question on the iPhone in China, and in Asia in general.
• In what some are interpreting as a rare slip in the long tradition of Jobs not commenting on potential future releases (his ship don't leak from the top!), longer than normal pauses apparently prefaced Jobs' no-comments on questions about an X-Serve Mini style embedded home server and an Apple TV supported by advertising rather than download purchase fees. Not iPhone specific, but either bit of tech could substantially impact the iPhone's capabilities or content models.
• Lastly, when asked why the iPhone always has half the memory of the iPod Touch, Jobs pointed out that things like the cell radio take up more space in the iPhone, leaving less for memory, and that the iPod would likely always take the lead in storage size.

Be sure to check out AppleInsider's complete coverage on the shareholders meeting in general, including the Mac, Apple Retail, and more.