Apple shareholders get a smart payday


(MoneyWatch) COMMENTARY By now, most Apple (AAPL) shareholders have probably heard the news that the board is parting with some of the company's cash. Out of approximately $100 billion, Apple will pay a $2.65 per share dividend in the fourth quarter of this year and also undertake a $10 billion share buyback program.

Investors have been calling for the company to do something with the money other than sit on a mountain of green that earned relatively little. So Apple did, and in such a way that its management both neatly skirted some major problems and positioned the stock for even more growth.

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One of the problems was concern about company perception. Because Apple has done so mindbogglingly well, people have looked at the realistic possibility that the good times won't roll on forever. That has translated in some speculation that the company might be running out of creative gas, particularly with the release of the new iPad. (Even though I'm not a card-carrying Apple fanboy, I'll put a stake in the ground that the high-end display is ultimately a game changer for technology.)

That could lead to dampened perceptions about the company, which could have translated into lower share prices. It's bad for shareholders, and CEO Tim Cook and Apple's board do have that pesky fiduciary duty to maximize value. But purely offering a dividend program could have contributed to the end-is-nigh chorus, because investors might have taken it as a sign that Apple was admitting that it had matured and continued blistering growth was unlikely.

Instead, the share buyback should have the effect of making the stock even more valuable than it has been. As of about 10:30 a.m. Eastern, shares were up by more than 1 percent. Not bad for a morning's announcement.

In the process, Apple expects that it will use about $45 billion in domestic cash during the first three years of the program. But that won't even touch what the company is capable of. Look at this free cash flow chart from stock analysis site YCharts:

Currently, Apple has a free cash flow -- the money available for investment -- of $16.23 billion a quarter. Even if that statistic suddenly turned flat, rather than continuing to increase, Apple will have recouped the amount it will spend over the next three years within three quarters. That's plenty for acquisitions, buying a priority spot in the hearts and supply chains of vendors, hiring talent, and otherwise messing with competitors.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.