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The purpose of this assignment is to evaluate the dividend and payout policy (plus related issues) associated with one of the most prominent companies nowadays: Apple.
Based on the articles above and the theories/concept explained in Topic 6 (“Payout policy”, Chapter 16 of the textbook), address the following questions:

a) How the increase in dividends paid by Apple since 2012 can be interpreted? Explain the potential risks the company might face when deciding to increase dividends.

b) Which are the factors behind Apple’s decision to choose for a specific payout policy (i.e., dividends vs share repurchases)? Elaborate on the implications of both in terms of the informational content/prospects related to Apple’s future outlook.

c) From an investor point of view, would you prefer Apple to buy back its shares or else pay dividends? Explain your reasoning.

Answer A

Apple is the behemoth of the technology sector, having headquarters in Cupertino, California which develops and sells the consumer electronics, software of the computers and the online services are also catered by it. In this report the dividend and the pay-out policy of the Apple has been discussed in detail. Furthermore, the variation of both the methods of the dividend such as the cash dividend and the buy-back of the shares have also included in the report. Apart from this the point of the view of the investor has also been given equal importance to get to know there idea and deduce the best possible alternative for the Apple in case of the dividends. The challenges faced by the Apple while keeping the same policy is another factor included in this report.

Talking about the dividend policy of the Apple, resumed its dividend payments in 2012 after a gap of the 17 years. Due to the success of the iPhone and iPad the company was able to generate enormous amount of cash and hence it accumulated the same from the success. The equivalent holding was worth $25 billion (Melloy, 2017). Since then there was a boom in the revenue and the earnings which resulted in the increase in the annual dividends for the three years.

From the above graph it can be analysed that the dividend shoot up from 2011 till 2013 constantly. Between the years 2012 to 2018 the dividend increased at the rate of 10% and making the overall raise of 18% in the financial year 2018. The major reasons as interpreted from the increase in the dividends of the Apple are either the increase in the net profit or the change in the strategy that ultimately gives the country an edge towards the expansion and distribution of the extra earnings in the form of the dividend. It can be interpreted from the earlier years that the dividend policy of Apple was significantly reasonable which helps to establish the dividend yield of 2% and resulted in the pay out of the 3/10th of the earnings (The Motley Fool, 2017). While forwarding from the 2012 in the year 2013 the company fostered the growth of the dividend on account of the income paying bandwagon. Though the profits fell down in the year 2014 and 2015 but the company did maintain the dividend ratio out of its retained earnings. Further the company still has the room for the improvement and can pay more dividends if follows the right strategy (Weber, 2016). Even after the introduction of the tax reform the Apple is successful in providing the double digit boost to its shareholders.

Usually the shares of the Apple are essentially escalated in comparison to the past two years after earning the ample amount of profits. It’s a fast growing dividend company and the repurchasing of $130 billion. The potential risks that the company might face while increasing the dividend is faced by the Apple Company are that the smartphones market has converted into the PC market. Smartphones have been a craze for most of the youngsters but eventually the market stopped for the same. For example in comparison to the One plus 6t and Redmi Poco F1, Apple’s iPhone 7 have been clearly provided the low features in comparison to these phones. This eventually hits the stock price of the Apple and this is the biggest challenge for the Apple to give the dividend to its shareholders (New York Times, 2012).

Answer B

There are several factors due to which the Apple kept the same policy of the dividend. Simply the shareholders make their investment in the publicly traded companies for the purpose of the capital appreciation and high returns on the money invested. The two main division through which the company can return its excess money to the shareholders in the form of Cash Dividends and Share Buybacks. The main reasons that implicate the decision is due to the current stock price, long term strategy and vision, the particular tax structure applicable to the company and its shareholders. The Apple chose to provide the cash dividends (Nwogugu, 2015). Apple has $200 billion in overseas as the liquid money (The Motley Fool, 2017). The policy followed by the Apple means that the company is having the cash money after the repatriating at $136 billion in the availability, is with the motive of the keeping the share buybacks at the peak level and its beneficial from the point of view of the shareholders as well (The Motley Fool, 2017). The improvement in the second quarter showcases that the policy is running successfully. Apple has paid $37 billion to the shareholders via stock buyback and $12 billion as the dividends. The company did not deploy the remaining capital as the share repurchase instead announced that Apple is upping its program and has an idea to spend $210 billion by the end of the last quarter that is March 2019. Also to maintain the consistency Apple adopted the policy and planned to increase the dividend on the regular basis. Since the cash dividends also provide the regular stream of the cash flows therefore the company idealises the policy of the regular cash dividends. Also the cash dividends play a vital role for those investors whose living standards are fulfilled by relying on heavily on the investments made (Liu, Yeats and Chang, 2016).

Apples’ biggest challenge or the risk while providing the dividends is the Android Technology market. Because of the increase in the pace of the market and the demand from the consumers it becomes difficult for Apple to find the new markets for its customers and therefore it was a difficult step to take a charge in respect to the payment of the dividends to its shareholders.

The launch of the iPad was not a successful move from the point of the customer and it created hardly revenue of 9% in total. This was again the risky move and the challenging source due to which it became cumbersome for the company to deduce the profits and divide the remaining surplus among the shareholders. But yet following the policy of the cash dividends Apple is the poster child in reverting the value to its investors. Hence forth these are the certain challenges that were faced by the Apple while having the idea of distributing the excessive cash in the form of the dividends (Chaudhry, Boldin, Affaneh and Tickell, 2015).

Dividends are distributed as the part of the company’s after tax profit. This method is most widely used method to keep the interest of the shareholders in the common and returning the surplus amount to its investors. Shareholders are dependent on the dividends and therefore it becomes important from the point of view of the tax planning itself (Agliardi, Agliardi and Spanjers, 2016).

Answer C

Share buy back on the other hand is the practice of purchasing the shares of its own company from its shareholders and helps in reducing the outstanding shares at the end of the balance sheet date. The buyback price given to the investors of the company is generally at the premium in response to the current market price (Shchurina and Mustafina, 2018).

The current policy of the Apple is to pay out the cash dividends out of the profits but from the point of the investor Apple shall buy back its shares, rather than paying out the surplus money in the form of the cash dividends due to the following reason as outlined below.

Buy backs are the most tax efficient method to return the amount invested by the shareholders, back to them because the investor doesn’t have to pay any additional fees or charges in the form of the tax while applying the process of the buy back as the tax is only applicable at the time of the sale of the shares (Moura, 2018).

With the help of the buy back the company can prevent the value of the stock as the supply of the stocks gets reduced.

As the outstanding shares reduced the EPS of the company shows a bit of the improvement this is the nice scheme for the company to opt for. This showcases that the company is profitable and more number of shareholders will tend to invest in the company accordingly. For example if the stock of the company is valued at $130 and the company followed the policy of the buy back at $150. This immediately resulted in the creation of the value for the investors (Engel, Lyons and Pannese, 2017).

Furthermore, it helps the company to use the excess of the cash lying idle and which is not used for any purpose. It also facilitates the decision making process as the number of shares are less which is owned by the public. This method also restricts the potential takeover by the rivals (Anwar, Singh and Jain, 2018).

The only difference is the dividends are given to the shareholders and the share buyback is given to the selected shareholders. And also in the process of the investors the investors are given the opportunity whether they want to take part in the process or not (Schneider and Kohlmeyer III, 2015).

Lastly buyback also provides the liquidity opportunities and more expansion and the scope for to grow.

In the DCF model the valuation techniques of the stock is based upon the present value of the cash flow price. For the purpose of calculation of the share price the following table is designed.



Terminal Value


Present value @ 13.71%






























Terminal Value




Intrinsic Value per Sharer


Current Share Price


Required Rate of Return

Rate of Return on Treasury Rf


Expected arte of Return on market portfolio E(Rm)


Systematic Risk


Required Rate of Return








Dividends Decared







Net Income







net Sales







Total Assets







Shareholder's Equity








Retention Rate








Profit Margin








Asset Turnover








Financial Leverage










Dividend Growth Rate Forecast













From the above table it can be analysed that the intrinsic value of the Apple Inc. is undervalued as per the current market price which is $168.49. Therefore from the above calculation it can be stated that the price is low so the investors can definitely invest the amount in Apple Inc. Moreover if the discounted rate is deduced it can be inferred that the cost of the equity is 13.71% and the growth rate after the period of the five years continues to remain same (Brawn and Sev?c, 2015). The undervalued price gives the investors a confidence to put up their money in the shares and as observing the trend the price continues to increase and it will benefit the investors in the long run. Therefore it is recommended to the investors to the buy the share as it has more potential for future deliveries.


Therefore form the above analysis it can be concluded that the best possible manner for the Apple would be the repurchase of the shares rather than paying out the cash dividends. Henceforth from the above analysis and the calculations after applying the DCF model the investors came to know the intrinsic value of the shares. Since the overall dividends are the key factors in determining the earnings of the shareholders to an apex level and hence a potential investor must consider all the factors that are affecting the price of the share.


Agliardi, E., Agliardi, R. and Spanjers, W., (2016) Corporate financing decisions under ambiguity: Pecking order and liquidity policy implications. Journal of Business Research, 69(12), pp.6012-6020.

Anwar, S., Singh, S. and Jain, P.K., (2018) Financial Flexibility Through Share Repurchases: Evidence from India. In Flexibility in Resource Management (pp. 163-183). Springer, Singapore.

Brawn, D. and Sev?c, A., (2015) Net payout return: An alternative to the traditional returns approach based on dividends and share repurchases. Finance Research Letters, 13, pp.66-73.

Chaudhry, M.K., Boldin, R.J., Affaneh, I. and Tickell, G., (2015) Dividend policy and earnings: a study of short-and long-term causality. Applied Economics, 47(50), pp.5445-5459.

Engel, R.P., Lyons, B. and Pannese, D., (2017) Liberating Trapped Cash: A Case Study of Apple and Microsoft. The Accounting Educators' Journal, 26.

Liu, J.C., Yeats, M. and Chang, J.L., (2016) The puzzle of 16 days between the ex-dividend and payment dates. Finance Research Letters, 17, pp.251-256.

Melloy, J. (2017) Apple now pays the biggest dividend in the world, surpassing Exxon’s payout [Online] Available from [Accessed on 9th December 2018]

Moura, P.C., (2018) Changes in Dividend Policies after PE Investment in the European Market.

New York Times, (2012) Flush With Cash, Apple Plans Buyback and Dividend [Online] Available from [Accessed on 9th December 2018]

Nwogugu, M.C., (2015) Alternative Risk Premia, Complexity and Bankruptcy Prediction: Behavioral and Asset-Pricing Anomalies In DERs and ASRs.

Schneider, D.K. and Kohlmeyer III, J.M., (2015) Stock Buybacks: Is Practice Explained by Management Theory?. Journal of Business and Accounting, 8(1), p.64.

Shchurina, S.V. and Mustafina, E.F., (2018) Dividend Policy and Its Influence on the Cost of Capital. Journal of Reviews on Global Economics, 7, pp.790-796.

The Motley Fool (2017) A Close Look at Apple, Inc.'s Dividend -- and Why It's a Solid Bet for Income Investors [Online] Available from [Accessed on 9th December 2018]

The Motley Fool (2017) What Are Key Factors That Influence Dividend Policies? [Online] Available from [Accessed on 9th December 2018]

Weber, J. (2016) A New Dividend Policy For Apple [Online] Available from [Accessed on 9th December 2018]

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