Apple Inc. (AAPL) plans to pay a dividend and buy back $10 billion of its stock, returning some of its $97.6 billion in cash and investments to shareholders as demand for iPhones and iPads boosts earnings.

Investors will receive a quarterly dividend of $2.65 a share starting in the period beginning July 1, Cupertino, California-based Apple said today in a statement. The buybacks will begin in the fiscal year starting Sept. 30 and will take place over three years, the company said.

Apple's cash pile has swelled amid surging demand for its products, such as the iPhone and iPad. Investors had urged Apple to return some of the balance in the form a dividend. Chief Executive Officer Tim Cook fueled speculation an announcement might be coming when he said this year that Apple had "more than we need to run a company," and that the board was considering its options.

"We are extremely confident in our future and see tremendous opportunities ahead," Chief Financial Officer Peter Oppenheimer said in the release. Apple said the company plans to pay out about $45 billion over three years.

The dividend will cost Apple about $10 billion a year and represents a yield of 1.8 percent on the stock's March 16 closing price. The company generated $16 billion in cash in the first quarter of fiscal 2012, which ended in December. Shaw Wu, an analyst at Sterne Agee & Leach Inc., predicts that Apple will generate about $75 billion in cash this year.

David Fuller's view When the world's biggest company in terms of market capitalisation announces its first dividend since 1995, plus a 3-year share buyback programme, it can only help to underpin market sentiment in what has already been an exceptional start to the year by any measure. Apple shareholders have been handsomely rewarded for their prescience but is this now a case of: "Buy the rumour; sell the news"?

In the short term, quite probably because exponential accelerations relative to the 200-day MA (weekly & daily) end badly when they lose upside momentum. For Apple, it is now hard to imagine what short-term good news has yet to be discounted. Mean reversion towards the rising MA, in the form of sideways to lower ranging, is all but inevitable over the medium term. Recently, we have seen two small, equal-sized downward reactions on the daily chart which were quickly retraced. When a clearly larger reaction and / or longer pause occurs, it will provide evidence of changing momentum.

However, over the longer term Apple's dividend can only increase the company's shareholder base, particularly regarding yield-oriented institutional investors. This will be doubly true if Apple nudges its dividend upwards on an annual basis, as it presumably intends to do in future. Obviously, earnings growth will remain the key variable for Apple or any other consumer electronics share. The Company has done brilliantly so far; it has more brand loyalty than any rival, and product enhancement is limited only by the imagination of its developers.