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Market Update

Apple Puts War Chest to Work

Apple's dividend and share repurchase program is a positive, but it doesn't move the needle on our fair value estimate.

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 Apple's (AAPL) announced a dividend and share repurchase program Monday morning, expecting to utilize approximately $45 billion of domestic cash during the next three years. Apple plans to initiate a quarterly dividend of $2.65 per share beginning in the September-ending quarter of this year. At the current share price, this represents a yield of approximately 1.8% per share. In addition, the company's board of directors has authorized a $10 billion share repurchase program with the aim of neutralizing dilution from employee equity grants and stock purchase programs. The third use of cash will be Apple's program to adjust unvested RSUs to account for the dividend.

We view this move as a positive for Apple, but our fair value estimate does not change as this simply represents a partial distribution of the $98 billion in cash and investments that we were already accounting for in our fair value estimate. This move is a positive, however, because it lowers the risk that Apple will pursue aggressive acquisitions or other riskier uses of cash. This move could also generate interest in the stock from shareholders that have a dividend focus. Furthermore, given the massive amount of cash available to Apple, this program will not limit Apple's strategic moves for the foreseeable future. The largest remaining question surrounding Apple's cash and investments is if the firm will be forced to pay tax on repatriating the funds (currently two thirds of total or $64 billion) that are domiciled in international jurisdictions. In the current political climate, we assume that Apple will be forced to take a tax hit on the funds located overseas.

Michael Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.