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TheStreet Open House

Apple's Dividend Strategy Divides Investors

Stocks in this article: AAPLMSFTCSCOIBM

CUPERTINO, Calif. ( TheStreet) -- From iPads to iPhones, Apple (AAPL) investors have had plenty of new gadgets to contemplate, but the tech giant's dividend strategy continues to be a touchy subject.

Apple stopped paying dividends in 1995, preferring to focus on growth at a time when the company was facing stiff competition from the likes of Microsoft (MSFT). A decade and a half later, though, Apple is an undisputed tech heavyweight, recently surpassing Microsoft's market cap and exiting the second quarter with more than $41 billion in cash and investments.

Now, some investors are clamoring for a share of the wealth.

"I feel pretty strongly that Apple should pay a regular dividend to shareholders," said Apple investor Scott Grannis in an email to TheStreet. "The size of its cash haul is now so big that it is difficult to justify."

Grannis, who writes the Calafia Beach Pundit blog, warned that a vast pool of cash could prove risky if not managed properly.

"Too much cash on hand can lead to the temptation to make ill-considered acquisitions," he wrote. "We've seen that happen with a number of tech companies -- for example, Microsoft and Google (GOOG)."

More on Apple
The New iPhone: WWDC 2010 Blog

Apple CEO Steve Jobs was asked whether the company would issue a dividend during the company's annual investor meeting earlier this year, but Jobs reportedly said that the cash haul offered security and flexibility. The turtleneck-loving Apple chief also implied that the company's share price would stagnate if it offered a dividend, according to Seeking Alpha.

Grannis, however, is not alone in calling on Apple to rethink its cash strategy, particularly given its ability to grow without major M&A. The iPhone maker typically makes small, tuck-in acquisitions and spent just 3.1% of revenue on R&D last year, compared to Microsoft's 15%. At the same time, Apple's products are flying off the shelves -- the company brought in revenue of $13.5 billion during its recent second quarter, up from $9.08 million in the same period last year.

"I think it has gotten to the point now where they are hoarding money for no good reason," Chad Brand, president of Peridot Capital Management, told TheStreet. "For an investor, it's frustrating."

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