When does a simple dividend announcement stop Wall Street? When it’s Apple (NASDAQ:AAPL) announcing it.
Continue Reading Below
In yet another sign of Wall Street’s growing fascination with Apple and the company’s enormous drawing power, the iPhone maker’s announcement Monday morning to break open its $100 billion piggy bank garnered enormous attention in the financial world.
The mere acknowledgement Sunday night that information on a possible dividend would be coming before U.S. markets opened received high placement on the website of The Wall Street Journal.
The ensuing news that Apple would pay a quarterly dividend of $2.65 a share and buy back $10 billion of its shares landed the company at the top of even non-financial websites, such as The New York Times.
Unlike most companies, which disclose dividend payouts via a short press release, Apple conducted a conference call for interested reporters and high-level Wall Street analysts.
Other companies can only dream of holding this kind of spotlight for a major product unveiling, let alone the announcement of a dividend.
“It does seem like a fair amount of spectacle,” said Colin Gillis, director of research and senior technology analyst at BGC Financial, pointing to Apple’s dividend yield of just 1.8% that is “a smidge below” the S&P 500’s average yield of 2.2%.
Trading volume, as measured by the S&P 500 and Nasdaq 100 futures contracts, also gained momentum just as Apple revealed its cash plans shortly after 8:30 a.m. ET.
Some may see the dividend frenzy as further evidence that Wall Street’s fixation on Apple has turned into an unhealthy obsession that hides negative factors in the economy.
“The market has become fixated on Apple as a big, super-cap name and whenever you see that much of the oxygen taken up by one name, that’s a sign there isn’t a lot of confidence in anything else,” Nicholas Colas, chief market strategist at ConvergEx, told FOXBusiness.com last month.
While the dividend news captivated Wall Street, the immediate impact on Apple’s shares was more muted: they were recently up less than 2% (although much of their recent surge can be chalked up to dividend speculation).
On the other hand, Apple’s enormous size, incredible growth pace and gigantic treasure trove of cash are compelling stories.
At more than $550 billion, Apple has become the world’s most valuable company by market cap, blowing past ExxonMobil (NYSE:XOM).
The tech darling continues to create products that millions of people around the world use and love, evidenced by the voracious appetite for the new iPad 3.
And there is no arguing with Apple’s extremely impressive growth clip: record shipments of iPhones, iPads and Macs allowed it to double quarterly profits and generate $46.33 billion in sales last quarter.
“It’s entirely sensible it would draw this much attention. There is no other major company that is displaying this kind of growth characteristic at this kind of size and with this kind of cash,” said James Awad of Zephyr Management. “It’s an intellectual curiosity for anybody in the business.”
Likewise, very few companies enjoy a cash stockpile like that of Apple, which listed just under $98 billion in cash and cash equivalents on its balance sheet as of the end of December. Other companies that are storing tens of billions of dollars on their own balance sheets may look to Apple for leadership with what to do with that cash.
Awad compared the amount of attention Apple received with the intense focus on the “Nifty 50” growth stocks of the early 1960s.
“Apple has become an investment vehicle and investment allocation of its own. If you’re a money manager and you’re in the relative performance game and you don’t own Apple, that’s a statement,” said Awad.