Posts At Eventide's  Instablog

Apple's announced quarterly dividend of $2.65 will be amply financed from ongoing domestic operations and will not diminish the company's current cash holdings of over $100 billion. Apple is currently generating cash at the rate of over $1 billion per week. The annual dividend, at the announced rate, will require an annual cash distribution of just over $10 billion based on an estimated 950 million fully diluted shares by the September quarter.

Similarly, the $10 billion in share repurchases over three years can be amply financed over that time from domestic operations. These announcements represent plans for use of cash from ongoing operations rather than use of the company's current holdings of cash and marketable securities.

The share buyback is intended to neutralize the impact of future share dilution from stock-based compensation rather than as a move to diminish the number of shares currently outstanding.

The impact of the reinstatement of a regular quarterly dividend is that it will open the floodgates of investment in Apple by conservative mutual funds and institutions that restrict investment to equities that pay a regular dividend.

The anticipated rise in the share price and the company's market value from the resumption of a quarterly dividend program due to the increase in share demand by conservative funds and institutions (as well as small investors who prefer dividend paying stocks) will be far greater than the amount of cash distributed annually through the dividend program.

Disclosure: I am long AAPL.

Ironically, HP's public statements about its PC division (to be jettisoned without a clearly defined plan) and decisions to discontinue webOS-based handheld products may be a boon for Mac sales. Apple is alone in the global marketplace with fully integrated solutions comprising PCs, tablets and smartphones. 

 

The fact that the world's #1 PC maker has determined the company lacks staying power in the marketplace signals to enterprises, consumers and educational institutions the best and safest approach to safeguard technology investments is to purchase Apple products, including Macintosh personal computers. 

 

Watch for an uptick in Mac sales through the holiday quarter in response to HP's announcements. In particular, HP's capitulation may accelerate the pace of Macintosh sales growth in the enterprise market and cement Apple's leadership in both the K-12 environment and on college campuses. 

 

Although the pace of Macintosh unit sales growth slowed in the June quarter due in part  to a surprising level of early iPad adoption in the K-12 market, risk-averse buyers of technology products have more reasons now to consider Apple as the primary supplier of technology solutions, including Macintosh personal computers.