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Why Apple Is Allergic to Dividends

Cisco and Microsoft have seen the dividend light, but Apple marches to its own beat.

CUPERTINO, Calif. (TheStreet) -- Apple (AAPL) - Get Apple Inc. Report is now one of a shrinking number of tech heavyweights avoiding dividend payments despite recent calls from shareholders and analysts to rethink its strategy.

Even networking giant

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

recently succumbed to pressure from shareholders

and is planning to make a dividend payment next year.

Microsoft

(MSFT) - Get Microsoft Corporation Report

, which reversed its dividend stance in 2003,

announced a 23% dividend hike on Wednesday.

So why is Apple allergic to dividends?

Apple sits astride a vast haul of cash -- almost $46 billion at the last count. It stopped paying dividends in 1995, preferring to focus on growth at a time of stiff competition from the likes of Microsoft. Fast forward 15 years, though, and Apple has a market cap of $261.5 billion, compared to Microsoft's $211 billion. Steve Jobs and his ever-growing array of gadgets have also carved out a unique niche in the public consciousness, with Apple enjoying phenomenal brand loyalty.

Even from this position of strength, though, there are no signs of an Apple dividend.

Earlier this year, at Apple's annual shareholder meeting, Steve Jobs said that he

prefers holding onto the company's cash hoard

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for potential acquisitions and "bold" investments.

"We know if we need to acquire something, a piece of the puzzle to make something big and bold, we can write a check for it and not borrow a lot of money and put our whole company at risk," he said. "The cash in the bank gives us tremendous security and flexibility."

Some analysts agree, adding that Apple spending money on a big tech buy would be a smart way to bolster the company's reach. "They could easily afford a dividend at any time, however I would rather see them make an aggressive M&A move," Joel Achramowicz, senior vice president of research at investment bank Blaylock Robert Van, told

TheStreet

.

A big acquisition could significantly bolster Apple's enterprise presence, according to Achramowicz, who suggested

Netflix

(NFLX) - Get Netflix, Inc. Report

as an attractive target on the strength of is strong consumer distribution platform.

It's also worth noting that

Apple's

R&D costs have certainly risen dramatically in recent years

, and this trend is expected to continue, further pressuring rivals such as

Research In Motion

(RIMM)

,

Motorola

(MOT)

and

Nokia

(NOK) - Get Nokia Oyj Report

.

Lastly, a sizable chunk of Apple's money is overseas, making a dividend even less attractive. According to Apple's most recent 10-K filing with the SEC, just over 50% of the firm's cash, cash equivalents and marketable securities are held by foreign subsidiaries. As Apple notes in its filing, "amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S."

So, how much would this cost Apple? It has been estimated that Apple

could owe more than $5 billion in U.S. taxes if it were to repatriate its overseas cash for a dividend.

Sure, Apple could easily make a dividend payment, but the tax implications would likely impact earnings greatly.

Despite the

recent calls for an Apple dividend

, it should also be noted that the company is not the only tech giant shunning dividends.

Google

(GOOG) - Get Alphabet Inc. Class C Report

has never paid a dividend. And

Hewlett-Packard

(HPQ) - Get HP Inc. Report

has kept its dividend at 8 cents since 1998.


Find ex-dividend dates, amounts, and yields -- by company -- with TheStreet's Dividend Calendar >>

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--Written by James Rogers in New York.

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