A Comprehensive Analysis of Apple Inc.'s Dividend and Payout Policies

This report delves into the dividend and payout policies of Apple Inc., analyzing its strategies from 2012 onwards. It examines how dividend increases are interpreted, the potential risks associated with such decisions, and the signals conveyed to investors. The report explores the factors behind Apple's choices regarding dividends versus share repurchases, discussing the implications of each in terms of informational content and future outlook. It assesses the pros and cons of both payout policies, considering their impact on investor expectations and the overall financial performance of the company. The analysis includes an examination of Apple's stock price fluctuations around dividend announcements and a comparison of its payout strategies with industry standards. The report concludes with recommendations based on the findings and a detailed bibliography.

Running head: DIVIDEND AND PAYOUT POLICIES OF APPLE INC
Dividend and Payout Policies of Apple Inc
Name of Student:
Name of University:
Author’s Note:

1DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Executive Summary:
This report is prepared to analyze and understand the dividend policies and the payout
policies for the last couple of years. Dividend is the return paid to the equity shareholders,
which is a part of the residual profit. Sometimes business organizations retain certain amount
of residual income for investing into the business for growing up the business. In this report,
the dividend policies and the payout policies of the Apple Inc, have been analyzed and their
strategies have been analyzed to understand their retention policies and investment policies.

2DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Table of Contents
Introduction:...................................................................................................................3
Overview of Payout Policy:...........................................................................................3
Dividend policy at Apple:..............................................................................................4
Apple’s Policy and informational content:................................................................4
Risk and outlook for the company:............................................................................6
Dividend Vs Repurchases:.............................................................................................7
Share Valuation:...........................................................................................................11
Conclusions and recommendations:.............................................................................12
References and bibliography:.......................................................................................12

3DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Introduction:
Shareholders are the owners of an organization. They invest their funds into
the business and in return, they expect some share of profit from the business. From the
profit, the interest or the claims of the fixed claimants are paid first and a part of the
remaining income is paid to the shareholders. This is known as the dividend. Therefore, the
part of the residual income, which is paid to the shareholders as return, is known as the
dividend. In this report, the dividend payout policies of the Apple Inc have been analyzed and
their strategies of investing the profit into the business again and growing up the business
have been analyzed based on the historical financial data of the Apple Inc (Andriosopoulos
and Hoque 2013).
Overview of Payout Policy:
Dividend payout is a vital financial management decision that the management of an
organization need to set for better utilization of their capital and reduction of the overall cost
of capital. If dividend is paid more, then the overall cost of capital increases and the retention
decreases (Andriosopoulos and Hoque 2013). On the other hand, if less amount of dividend is
paid, more share of profit is retained in the business and the overall cost of capital becomes
minimum. Dividend policy is nothing but all those payout and retention decisions and the
tradeoff between the debt and capital in the total capital structure of the company. In the
following parts of this report such dividend policies of the Apple inc and its risk exposures
have been analyzed with the help of historical data (Andriosopoulos and Hoque 2013).

4DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Dividend policy at Apple:
Apple’s Policy and informational content:
It is one of the most important topics, which leads to the increase in the share price of
Apple in recent time, which has attracted many investors due to high payout of dividend. The
recent trend can shows that the company has high trend of the share price, which means it is
rising very high year after year. If the company has ever seen any decreasein response to the
share price but it was compensated in the next year. This made the company so valuable and
one of the favorites in the financial market (Renz and Herman 2016). The dividend payout
ratio of the company is seen very attractive and it is one of the favorites among the investors
but it is not profitable for the spectators. The spectators often conduct their business in a very
short period of time which leads to be not the favorites in case of the investment
(Annualreports.com 2019).
2017 2016 2015 2014 2013 2012
EPS 9.27 8.35 9.28 6.49 40.03 44.64
DPS 2.4 2.18 1.98 1.82 11.4 2.65
Payout Ratio 26% 26% 21% 28% 28% 6%
Retention Ratio 74% 74% 79% 72% 72% 94%
It can be seen that the company has some serious effect in case of the investment. As
per the trend concerns in the year of 2012 it is seen that the earning per share has went up to
44.64 whereas the dividend per share is 2.65. In case of the payout ratio the trend has shown
that the company has payout ratio of 6% whereas the retention ratio for the company is the
94%. This states that the company is not spending amount of capital. In this year the
company has decided to not spend any of its capital in the research and development of the
company. The company has done this because they want to expand this capital in next year
which will help the company to grow more and hence the company can develop more and

5DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
increase the customer base. In the year of 2013 it can also be seen that the earning per share is
40.03. In the case of the dividend per share 11.4 and in the case of the payout ratio is 28%.
The rotation ratio in the year of 2013 is 72%. This explains that the company has spent
considerable amount of capital mainly in the research and development of the company and
also the company also includes the company’s growth. In the year of 2014 the trend remains
the same as the company has spent considerable amount in the research and development.
The company has also spend this amount in the advertising and promotion of the product
which will help the company to grow much faster. The company’s earnings per share were
6.49 and the company’s dividend per share 1.82. The payout ratio of the company in the year
of 2014 is the 28% and the retention ratio is the 72% which is similar to the year 2013. In this
case it can be understood that the company need to be stated that the company has seen
considerable amount of growth and it is also seen that the company has spent same amount of
capital for the development of the company (Annualreports.com 2019). In the year of 2015 it
can be seen that the company needs to invest in the company’s earnings per share is 9.28 and
in the case of the dividend per share it can be stated that the 1.98. The company’s payout ratio
is the 21% and the retaliation ratio is the 79%. This states that the company has retained more
amount than last year but still the company has also some of the capital for the development
of the research and development and also in other department of the company which will help
the company to increase high. In the year 2016 the company has seen the earning per share as
8.35 and the dividend per share is the 2.18. On the other hand the payout ratio is the 26% and
the retention ratio is the 74%. In the year of 2016 it can be seen that the company has
increased the percentage capital for the investment purpose and it was observed that the
company has development many new technologies which have hinted thegrowth of the
company. In the year of 2017 it is seen that company has seen higher increase in the earning
per share which can be termed as the 9.27% and in the case of the dividend per share is the

6DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
2.4. The payout ratio of the company is the 26% and the retention ratio is the 74%. This made
the company to retain less capital in comparison to last four years. The company still uses the
considerable amount for the increase in the market share which is done by paying
considerable amount in the research and development and also in the other department of the
company. As per the trend suggest it can be seen that the company has some serious
problems regarding the company’s growth structure by implementing considerable amount in
the research and development in the continuous growing technological world
(Annualreports.com 2019).
Risk and outlook for the company:
There is a considerable amount of risk which is associated with the increase in
dividend which is paid by the company to its shareholders. The company’s capital gets
depleted more. In case of Apple Inc. the dividend in the last five years is much more than
what is expected and hence there is considerable amount of repercussion which comes with
it. The risk may arise in future if the company has seen some huge amount of depletion in
sales and the company faced a loss which needs to compensate. Then the company will be in
grave danger and the company needs to compensate this amount with the capital and it cannot
be compensated in this case as the company has spent the amount for its
development.Another risk which can be seen that the company ha provided considerable
amount of ownership to its shareholders. This will lead [to the several problem as the
company have to take permission in the times of the important decision. This will make the
company in negative side as the company’s corporate governance will decrease drastically
(Annualreports.com 2019).

7DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Dividend Vs Repurchases:
As per the analysis goes it can be seen that the company has seen a considerable
growth of dividend payment rather than buy backing of shares. This has some considerable
effect on the company in respect to not buying back shares from the market. The buy backing
of shares helps the company to regulate the value of the shares. This is done by reducing the
supply of shares and hence the demand of the shares in the market increases and the company
will see increase in the price. As the price of the shares increases then it can be seen that the
earning per share also increases also improves. This is one of the good indications for the
company as the profitability of the company also increases and the share price of the
company also increases in the long run.While the buy backs have some serious disadvantages
which Apple Inc. has identified and the company was able to reconsider it. If Apple want for
the invest in the profitable deal then they will not able to involve. It is seen that the company
who has faced such problems created a bad signal which will make create a bad name in
respect to the brand name. The Apple Inc. being one of the market leaders has earned a
considerable amount of goodwill which will turn down in a very few days and hence the
company will not rise anymore. This is not good for the long term investors for capital
application. The buy backing of shares will also provide negative signal about the confidence
of the company (Hoberg, Phillips and Prabhala 2014). It is seen that Apple Inc. has shown
some serious confidence since its inception in its product and in its strategies so it is not the
option for the company. The buy backing of shares will also provide the company to promote
the promoters of the company to sell their stake when the above mentioned situation arises.
This also create huge havoc for the company’s reputation in the market which may lead to
decrease in the brand name of the company which has effect in the share value of the
company and also the company’s goodwill will be effected. The company like Apple Inc.
who rules the technological market cannot afford to lose their goodwill just for the sake of the

8DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
financial strategies. It is also observed that the company who hasgone for the buy back the
shares has to wait for a very prolonged period of time. The process itself is very time
consuming. This process also involves disclosing such information in the stock exchanges
which in turn hamper the brand name of the company. The approval from the regulatory body
of any stock exchanges requires several steps and it also takes several times. The time which
requires cannot afford by Apple Inc. to miss as the company do their business which is ever
changing so the company need to focus on the company’s research and development depart to
compete in the market and remain as the number one position in the market. The process of
buy backing of shares requires a considerable amount because the process is very expensive
and the company has to hire an investment banker who will conduct such affair and make it
possible (Hoberg, Phillips and Prabhala 2014). This amount stated an extra package for the
company. As per Apple Inc. such amount considered as the extra in their financial strategy.
Rather go for buy backing of shares the company has went for paying dividend. In this
scenario Apple Inc. tends to increase the capital strength of the company and also kept to
keep a good name by increasing the dividend payment. In the case of Apple Inc. dividend
payment also lead to increase in the share value as the company able to maintain the good
name which made the company’s goodwill remain intact and the company able to do business
with ease. The customers of the company are very happy because the company has
consistently developed new technologies which lead to increase in the growth of the company
(Hoberg, Phillips and Prabhala 2014).
If the company is implementing the strategy of the buy backing of shares then the
company will be benefitted from various ways in respect to the company’s point of view. The
company’s share value will increase as the supply of the share will drastically decrease and
the demand for Apple Inc. will increase which in turn help the company to enter into the new
project as the company will be able to avail more capital as the capital will increase rise high.

9DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
The company will also able to gain the cash which will help the company to grow more as the
company has more availability of shares. If the company has more capital then the company
is capable to provide the debt during any kind of winding up. This will help the company to
grow as the share price of the company will increase and the company can invest any kind of
projects. The decision making process became very easy as the buy backing of shares
increases high availability of shares with the company and the company will enjoy the
supremacy while taking any kind of decision. In case of dividend payment the shareholders
of the company will very happier which will bring the company’s good name in the market
and hence the goodwill of the company increases rise high. It can also be seen that the
company enjoys huge cash flow in terms of inflow and outflow of shares which make the
company make very valuable and the company will see a considerable growth. The company
uses the considerable amount of shares which will for the purpose of the development of the
company in departments like research and development departments which is one of the pivot
depart6ment for the companies which are dealing with the technology. As in the industry of
technology the company needs to develop themselves for the benefit of the company and
hence the company will rise high in future. The dividend payment will to maintain the value
of the shares in the market which will help the company to enjoy a leader in the market and
also this money will help the company to invest in various departments for the improvement
and leads to rise high and maintain the position in the market (Karadag 2015).
The company can able to choose either buy backing of shares or dividend payment of
shares. In case of Apple Inc. it is seen that the company can able to take dividend payment as
its option. As per the investors is concerned the company which pays dividend is more
preferable as the company will provide money in every period. It is also seen that the
investors can reinvest the money in other shares which will help the company to grow and the
company will able to grow more. The only drawbacks are that the income which is coming in

10DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
terms of divided is considered as the tax. To avoid such situations the investors always tends
to invest this amount in other shares which enhances the share price of the company. If the
investors want to rely the dividend as the income then the investors need to pay the tax
because which comes is taxable. This also states that the investors will have a permanent
dividend received every considerable amount of period. This increases the bank balance of
the investors. The shareholder’s interest also remained intact and hence the investors feel
valuable to the company as during any kind of decision making the investors takes part and
helps the company to grow (Karadag 2015). It is common for the company to return the
surplus to the investors. As the market leader in the technological industry Apple Inc. always
have surplus which are being transferred to the investors and helped to maintain the
shareholder’s interest. This made the investors very profitable as the investors will able to get
the dividend on a regular basis and it also help the company in return to have the cash. In case
of the investors the cash flow of the investors will keep on rotating as the company will get
the cash rise high. The investors on the dividend will always be happy as the cash flow of the
investors always rotating and the investors getting enriched day by day. As the investors who
have invested in the Apple Inc. shares the investors will be very satisfied and the company
will lead the company to grow more. The company also provides the cash reward to the
investors aside from the dividend and the ownership, which the investors enjoy (Karadag
2015).

11DISCUSSION ON DIVIDEND PAYOUT RATIO OF APPLE
Share Valuation:
(Source: Apple Inc Annual Report 2018)
For valuation of shares of the Apple Inc, cash generated from the operating activities
of the Apple Inc have been considered as the free cash flow and a 5% growth in free cash
flow have been considered. It is also assumed that a 60 percent payout and percent share
repurchase strategy is adopted by the company. Based on such assumptions the value of
shares in the future years can be computed as above. In the above calculation, information
has been taken from the 2018 annual report of Apple Inc. The cash flow generated from the
operating activities has been considered as the free cash flow, and the number of shares
outstanding as on the closing date of the 2018 fiscal year has been considered for the
calculation in the above table (Apple Inc Annual Report 2018). A moderate rate of discount is
taken for discounting the future expected cash inflows. In this table the discounted cash flow
technique has been used which considers the time value of money. Based on the above