-- Just as it looked like Apple aapl investors couldn't make any more money, they just did.
Apple will start paying shareholders a $9.9 billion annual dividend, which is equivalent to $10.60 a share or a roughly 1.8% yield with Apple shares trading at nearly $600. This dividend, the largest initial one ever by a U.S. company, comes on top of large stock price gains enjoyed by investors. Shares of the gadget maker are already up 70% the past year.
The dividend ushers in a new era for Apple, where the company financially transitions from being a scrappy upstart that pours its profit into new products, into more of a mature firm that generates more cash than it can use. Apple is now the second largest dividend payer, just behind telecom utility AT&T at a $10.4 billion annual payout.
And the move makes Apple less of a speculative play and more of a candidate for investors looking for a mature company. The dividend is a steady payment of cash for investors who have become accustomed to collecting on the stock's breathtaking capital gains. Apple's 1.8% dividend yield is in line with the Standard & Poor's 500's roughly 2% yield.
Given the sheer size of the dividend, investors may be wondering:
• What does the fact Apple is paying a dividend mean for the company and stock market?
The dividend signals a significant financial shift for Apple, as the company's profitability far outstrips its internal needs for expansion, research and hiring. Apple's dividend is the largest new dividend ever paid by a company, beating the $1.3 billion record previously set by Cisco Systems, says S&P Capital IQ.
Apple's dividend further extends the record dividends being paid by S&P 500 companies this year. Just Apple's dividend alone increases the S&P 500's payment by 3.9%.
Apple's dividend is so massive, it's even shifting the financial performance of the entire technology sector. The tech sector, which once shied away from dividends because they were regarded as a refuge for companies with no growth, is now the second largest payer of the 10 sectors S&P Capital IQ tracks. The tech sector's dividends account for 13.5% of all dividends paid by S&P 500 stocks, following consumer staples at 14.8%. Apple's dividend increases the total dividends paid by the tech sector by nearly 32%.
And the fact Apple can afford such a giant dividend is a testament to its power not only in technology, but in music, gaming, retailing and entertainment. Apple's market value, which rose 2% after announcing the dividend to $558 billion, makes it 4.3% of the market's total market value, just behind IBM's historic 6.4% weighing at the height of its power in 1985.
• Does this use up much of Apple's cash pile?
It hardly makes a dent. Apple is sitting on nearly $100 billion in cash and investments, and that sum continues to mount. Last year, the company accumulated $45 billion in cash from operations, spending just $4.4 billion in cash for capital expenditures, like plant expansion or equipment. The company's dividend uses up just a quarter of the cash the company generates in one year.
Along with the dividend, Apple announced plans to buyback $10 billion of its stock over the next three years. Apple says the dividend, stock buyback and cashing out of some restricted stock, will use $45 billion of cash over the next three years.
• Who gets the dividend?
Any Apple shareholder who directly owns the shares on or before the so-called record date. The company has not disclosed precise timing for the dividend payment, but indicated it plans to pay the first dividend sometime in its fourth fiscal quarter, which starts July 1.
The company will provide the record date, which is the day an investor must be on the books as owning the shares to receive the dividend. At General Electric, for instance, shareholders must own the shares roughly two months prior to the date the dividend is actually paid in order to receive the dividend.
• Will mutual fund investors get the dividend, too?
Investors who own Apple shares indirectly, such as through a mutual fund or exchange-traded fund, also are entitled to the dividend. Apple's dividend, in these cases, don't flow directly to the investor. Instead, the dividends are collected by the mutual fund or ETF company. Apple's dividend, along with the others collected by other investments, are pooled by the fund. After the fund's expenses are deducted, the remaining cash is distributed to investors periodically through the year, usually quarterly.