Apple gearing up to pay out $2.5 billion in dividends on Thursday

Posted:
in AAPL Investors edited January 2014
Flush with billions in cash it simply can't spend fast enough, Apple has begun the process of issuing its first quarterly dividend to shareholders in 17 years.

Apple announced its plans for a new dividend program in March, alongside a $10 billion share buyback program. Each quarter, the company stated it will pay its shareholders a $2.65 per share dividend.

Shareholders of record as of Monday August 13 will be paid dividends on Thursday, the company has announced.

Apple's chief executive Tim Cook noted that the company has "used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure. You?ll see more of all of these in the future.

?Even with these investments," he added, "we can maintain a war chest for strategic opportunities and have plenty of cash to run our business. So we are going to initiate a dividend and share repurchase program."

Can't spend fast enough to make a dent

Over the next three years, Apple has stated that its buyback and dividend plans will distribute $45 billion from its cash pile. Across the company's 935 million outstanding shares, the quarterly dividend will amount to nearly $2.5 billion in payments to investors each quarter.

In the most recent June quarter, however, Apple announced the accumulation of an additional $7 billion in cash, so the payment of $2.5 billion in dividends will not reduce Apple's cash hoard, nor even stop it from growing past its current height at $117 billion.

Cash
The growth trajectory of Apple's cash hoard, via Asymco.


Apple has likely earned nearly twice as much new cash in the first seven weeks of its new quarter than it will be paying out as a dividend for the previous one. Apple will pay out a second dividend in November, and continue paying new quarterly dividends about a month and a half after the end of each subsequent quarter.

A dividend equivalent will also be paid to holders of Apple's restricted shares, although Cook has declined to collect dividend payments for the 1.125 million shares of restricted stock he has been granted, which would otherwise be worth over $75 million.

The company's current dividend payment rate is quite modest when compared to its current and future cash position. At the same time, Apple's $2.5 billion in quarterly dividend payments makes it one of the highest dividend payers in the U.S.

Shareholders pay income taxes on dividends, but not much

Shareholders only pay a federal capital gains income tax on any stock appreciation when they sell their securities, but Apple's new quarterly dividend incurs income tax as it is paid out. This year, however, that tax rate remains extremely low.

Following the Bush Tax Cuts, tax payers in the lowest 10 and 15 percent brackets (individuals earning less than $35,000 in taxable income) pay nothing in long term capital gains tax, while higher earners pay just 15 percent on the profits any shares they sell in 2012 (if they've held the stock for at least one year).

Tax rates are the same for qualified dividend payments; lower brackets pay nothing while those in higher tax brackets pay a flat 15 percent tax rate on any dividend income. This means an individual earning more than $35,000 pays considerably more in taxes for earned income from labor or most other sources (at least 25 percent, currently up to 35 percent) than an investor pays on cash distributions they receive as dividends or share appreciation capital gains (15 percent).

This disparity between the very low federal tax rates on dividends or stock appreciation income and the much higher taxes that workers pay has resulted in criticism from even the very wealthy.

Billionaire investor Warren Buffett famously noted that he pays a lower tax rate on his investment income than his secretary pays in income taxes. The White House has jumped on this "Buffett Rule" to recommend that high income individuals should return to paying standard tax rates from the 1990s on their investment income and dividends.

The historically low federal tax rates for investment income are set to automatically expire at the end of this year, but Congress is virtually guaranteed to extend the cuts, and is currently only arguing over whom, if anyone, should be excluded from the huge tax breaks, based on their income.

U.S. President Obama has floated plans to extend the Bush Tax Cuts only for individuals earning income of $200,000 or less. That would allow the capital gains tax for higher income individuals to rise back to 20 percent, while dividend payments would be taxed at the same bracket as other income, up to a new 39.6 percent bracket for those earning more than $390,000.

The Democratically controlled Senate passed Obama's tax cuts for individuals making less than $200,000, while the Republican controlled House has passed a full extension of the status quo; the two will have to negotiate a plan to avoid the tax cuts from expiring automatically at the end of the year. The cuts were last extended two years ago at the end of 2010.
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Comments

  • Reply 1 of 98
    apple ][apple ][ Posts: 9,233member


    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?


     


    I've never held a dividend stock before. $2.65 per share doesn't seem like a whole lot though, to be honest. Somebody can make that per share in a few minutes, just trading AAPL on any given green day.

  • Reply 2 of 98


    Thank you Scamsung ! 

  • Reply 3 of 98
    just_mejust_me Posts: 590member

    Quote:

    Originally Posted by Apple ][ View Post


    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?


     


    I've never held a dividend stock before.



    yes, but why would you sell?  You get less than 3 dollars or less than .5%

  • Reply 4 of 98
    wingswings Posts: 261member


    Why not just have Samsung cut the checks?

  • Reply 5 of 98
    mstonemstone Posts: 11,510member

    Quote:

    Originally Posted by Apple ][ View Post


    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?


     


    I've never held a dividend stock before. $2.65 per share doesn't seem like a whole lot though, to be honest. Somebody can make that per share in a few minutes, just trading AAPL on any given green day.



    Yes. Minus two commissions to your broker and income taxes. Assuming it will be worth more when you sell it than when you bought it. Do the math to see if it is worth it.


     


    Edit: BTW Welcome back from your vacation.

  • Reply 6 of 98
    apple ][apple ][ Posts: 9,233member

    Quote:

    Originally Posted by Just_Me View Post


    yes, but why would you sell?  You get less than 3 dollars or less than .5%



    I know that the dividend amount is tiny, I was just wondering about the rules regarding dividend stocks.

  • Reply 7 of 98
    Dan_DilgerDan_Dilger Posts: 1,584member


    Well you would need a time machine to go back to Monday. 


     


    Plus, you'd be hit with short term capital gains taxes on your stock's appreciation. AAPL is up about $13 this week, so you'd pay 15% tax on your $2.65 dividend but standard bracket rates on the ~ $13. To keep more of your capital gains, you have to hold the stock for at least a year. But then you'd risk the possibility that Congress might fail to extend the tax cuts for the rich, meaning you'd end up paying regular bracket tax rates (closer to 35%) on a year's worth of capital gains. 


     


    Of course, you'd still be making money, you'd just not be getting a free ride via the Bush Tax Cuts. And probably not enough money to pay for that time machine. 

  • Reply 8 of 98
    apple ][apple ][ Posts: 9,233member

    Quote:

    Originally Posted by mstone View Post


    Yes. Minus two commissions to your broker and income taxes. Assuming it will be worth more when you sell it than when you bought it. Do the math to see if it is worth it.



    I wasn't planning on selling anything, and certainly not because of any microscopic dividend. I was just curious. Thanks for the reply!

  • Reply 9 of 98
    herbapouherbapou Posts: 2,228member

    Quote:

    Originally Posted by Apple ][ View Post


    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?


     


    I've never held a dividend stock before. $2.65 per share doesn't seem like a whole lot though, to be honest. Somebody can make that per share in a few minutes, just trading AAPL on any given green day.



     


    There is no money to make trading the dividend x date.  1st the date you had to own Apple to get the dividend was not the 13, but before the close on 8th.  So if you own Apple before the close on the 8th you get 2.65$ per share. Actually, the dividend "snapshot" happen at the open on the 9th and at the same time the stock price automaticly drop by the amount of the dividend.  So the stock dropped by exactly 2.65$ at the open on the 9th, so there is no trade that will give you a free lunch even if you can trade in the after hours. You could sell the stock on the 9th and still get the dividend when its paid, you only need to own the stock at the X-date to get the dividend.  The Apple x-date was the 9th at the open.


     


    The same goes for option premiums, the dividend amount is calculated in the calls and the puts and there is no way to gain anything on that side either. The only proven strategy with dividends is to exercices a deep in the money call before the X date. The thing is the premium on those calls is so low the dividend premium doesnt adjust correctly to compensate the dividend.  We are talking pocket change here unless you trade large amounts (20+ millions)

  • Reply 10 of 98
    cvaldes1831cvaldes1831 Posts: 1,832member
    Apple II wrote: »
    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?

    I've never held a dividend stock before. $2.65 per share doesn't seem like a whole lot though, to be honest. Somebody can make that per share in a few minutes, just trading AAPL on any given green day.
    No, there are holding period requirements to be eligible for the qualified dividend tax benefit.

    http://www.irs.gov/pub/irs-pdf/p564.pdf

    $2.65 per quarter is a 1.7% yield. Some investors prioritize income over growth. AAPL is definitely a growth stock, no doubt about that, it would not be a total choice for investors who are looking for large payouts. AT&T (T) yields 4.4%, Frontier (FTR) yields 8.8%, Windstream (WIN) yields 10% for comparison.

    herbapou has provided some examples of how the market adjusts for the dividend payout. There's no free lunch by quick trades trying to game the dividend ex-date.
  • Reply 11 of 98
    brlawyerbrlawyer Posts: 828member


    A pathetic development for what has always been a growth stock - another proof that Cook is terrible visionary.

  • Reply 12 of 98
    focherfocher Posts: 688member

    Quote:

    Originally Posted by brlawyer View Post


    A pathetic development for what has always been a growth stock - another proof that Cook is terrible visionary.



    Jobs didn't want to pay out any dividend whatsoever, feeling that shareholder return was provided by growing the company. Am I to understand that you also believe Steve Jobs was a terrible visionary?


     


    By the way, 30-40% margins on products is precisely because Cook is a visionary.

  • Reply 13 of 98
    chiachia Posts: 714member

    Quote:

    Originally Posted by Apple ][ View Post


    Can somebody buy AAPL on monday, collect the dividend on Thursday and then sell the stock on Friday?


     


    I've never held a dividend stock before. $2.65 per share doesn't seem like a whole lot though, to be honest. Somebody can make that per share in a few minutes, just trading AAPL on any given green day.



     



    Originally Posted by AppleInsider View Post



    Flush with billions in cash it simply can't spend fast enough, Apple has begun the process of issuing its first quarterly dividend to shareholders in 17 years.

    Shareholders of record as of Monday August 13 will be paid dividends on Thursday, the company has announced.


     


    Does this mean that if somebody sold their shares today on Tuesday, they'll still be receiving a dividend on Thursday?

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

     


    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

     


    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

     
  • Reply 14 of 98
    brlawyerbrlawyer Posts: 828member

    Quote:

    Originally Posted by focher View Post


    Jobs didn't want to pay out any dividend whatsoever, feeling that shareholder return was provided by growing the company. Am I to understand that you also believe Steve Jobs was a terrible visionary?


     


    By the way, 30-40% margins on products is precisely because Cook is a visionary.



     


    No, I agree with SJ 100% - did you read my post? He never agreed with dividends, Cook does...is this clear for you?

  • Reply 15 of 98
    SpamSandwichSpamSandwich Posts: 33,407member


    WTF is this doing in this story?


     


     


    Quote:


    This disparity between the very low federal tax rates on dividends or stock appreciation income and the much higher taxes that workers pay has resulted in criticism from even the very wealthy. 




     


    Dilger doing his usual bang up job of inserting his own bias into every post. Nice.

  • Reply 16 of 98
    john.bjohn.b Posts: 2,742member


    It would be a more interesting chart to graph what cash/cash equivalents are in the US vs. what is held in foreign accounts.

     

  • Reply 17 of 98
    cvaldes1831cvaldes1831 Posts: 1,832member
    I'm pretty sure someone has done that, just use your favorite search engine, but it's bound to be one of those Apple finance bloggers.

    Apple's cash should be about three-quarters held off shore, maybe even more.
  • Reply 18 of 98
    focherfocher Posts: 688member

    Quote:

    Originally Posted by brlawyer View Post


     


    No, I agree with SJ 100% - did you read my post? He never agreed with dividends, Cook does...is this clear for you?



    Ah, I misread it. I thought you were criticizing the size of the dividend. Another read makes it clear.


     


    It still doesn't change that a dividend has no real impact. Apple has a practical problem in that it can't sit on so much cash (which is increasing) forever. I fundamentally agree that Apple is in the best position to put that cash to the best business use but, as Apple hasn't shown any inclination to make big acquisitions (which is smart), the number of options is running out. Paying out a small amount through a dividend is actually not going to address the basic issue - they are earning more than they can spend. For a publicly held company, that's a situation that needs to be addressed at some point.

  • Reply 19 of 98
    herbapouherbapou Posts: 2,228member

    Quote:

    Originally Posted by brlawyer View Post


     


    No, I agree with SJ 100% - did you read my post? He never agreed with dividends, Cook does...is this clear for you?



     


    The only reason SF didnt want to pay dividends is he lived the Apple near death experience in the 90's.  He wanted Apple to have a enough cash reserve to survive no matter what.  Since Apple pays less dividends it actually earns, the dividend has no impact whatsoever on Apple operations and R&D.


     


    The growth in stock price is no insurance a stock owner is getting its reward because you dont make any gain until you sell.  The dividend is profit coming out while retaining the same amount of shares.  Lets assume someone buy's 100 shares of Apple at 5$ in 2000. Then lets assume Apple crash and burn in 2020 and Apple goes back to 5$ share. The share holder didnt made a dime. But with dividends, the same share holder would had made a lot of cash because it would had received some of the company profits between 2000 and 2020.


     


    A lot of investors are accumulating dividend stocks because they dont want to follow the market on a day to day basis.  They buy dividend stocks that beats bonds rates and they are in business. There is a huge market for income funds and with Apple paying a dividend it allow those funds to buy Apple stocks, which in turn rise the stock price. With Apple market cap, is getting harder to rise the stock price, so dividend may be the only way to make profit at some point.

  • Reply 20 of 98
    msimpsonmsimpson Posts: 452member

    Quote:

    Originally Posted by SpamSandwich View Post


    WTF is this doing in this story?


     


     


     


    Dilger doing his usual bang up job of inserting his own bias into every post. Nice.



     


    Exactly, what does the large section on taxes have anything to do with Apple paying a dividend?  


     


    Capital Gains taxes are not just "taxes on the rich".   Everyone pays the same rate on capital gains.  I am not rich, but I am saving and investing money for retirement and I do have to pay capital gains taxes on dividends too.   Don't forget that the money I earned and saved to invest for retirement was already taxed once as income at the higher rate for income, and then it is double-taxed when it earns dividends.


     


    The US government encourages taxpayers to invest for retirement by allowing 401K's, IRAs and other means to shelter income from taxes.  And that is good, because counting on social security to pay for everything is pretty short-sighted and unrealistic.  

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