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Apple announces $45bn payout

The company will use some of its cash pile to pay dividends to shareholders and buy back $10bn of sh

Apple announced yesterday afternoon that it would use some of its enormous cash pile to begin to pay dividends to its shareholders, as well as to buy back $10bn of shares.

The company currently has just under $100bn in cash and securities, and if it didn't do something with it, Moody's predicted that by the end of this year, it could represent 12 per cent of all corporate cash and three times as much as the next biggest holder of cash, Microsoft. The problem the company had was that it didn't really know what it could do with the money. It had enough to buy many of its competitors outright, and enough to secure exclusive supplies of any components it needs with up-front cash deals, and yet its pile of money carried on growing.

The deal as announced would involve the company paying a quarterly dividend of $2.65 per share -- a yield of 1.76 per cent at the prices as of the close of markets -- as well as buying back $3.33bn of shares a year for three years. The company explained the latter move as an attempt to counteract the dilution that employee stock options created.

The share yield is relatively low, but that metric is a function of share price which is out of Apple's hands (indeed, the company's shares rose by 2.65 per cent on the news); in pure value, the dividend is likely to be the second largest in the world, only beaten by AT&T.

Therein is the curious thing about the news. Dividends are, usually, the act of a company in stagnation -- or, to remove the normative element of that description, a company that has hit its stride. You only return the money to shareholders if you have nothing better to be doing with it. Normally, that occurs when one has grown as far as possible, and profit can't be usefully reinvested; in the case of Apple, it seems to be that the growth is so fast that there is genuinely no point in holding on to the cash. Even after the payout, the company will still experience a growth in its cash pile every quarter from now to the end of 2012.

One small reason for the action can be found in a rare political play from the company. $64bn of the cash it holds is foreign money, in overseas bank accounts -- it sells an extraordinary amount of phones, computers and iPads outside of America, of course. The American tax code, however, only treats as taxable income held domestically. As a result, to repatriate that money -- which it would have to do to include it in the dividend -- would result in America's 35 per cent corporation tax being levied on it. The company used its conference call to push for a tax holiday of the sort that George Bush created in 2004, when for a year money repatriated was taxed at only 5.25 per cent. In the near future, that looks unlikely. Corporations can wait, however, and one day a Republican will be elected again. "In a funny way," writes Matt Yglesias, "the fact that a tax holiday might happen ends up strengthening the case for doing a tax holiday."