Apple says it will start paying a regular quarterly dividend of $2.65 a share in July and will buy back up to $10 billion of its stock starting in the next fiscal year.
Apple expects the share buyback program to run over three years, with the primary objective to offset the impact of employee stock options and equity grants.
Apple's annual dividend yield will come in around 1.8 per cent. That is slightly lower than the average of 2 per cent for companies in the Standard & Poor's 500 index.
"We have used some of our cash to make great investments in our business through increased research and development, acquisitions, new retail store openings, strategic prepayments and capital expenditures in our supply chain, and building out our infrastructure," Apple Chief Executive Office Tim Cook said in a statement. "You'll see more of all of these in the future."
The company will still maintain a "war chest" for other strategic opportunities, Cook said. "These decisions will not close any doors for us."
He told analysts on a conference call that product innovation remained the company's priority.
The maker of the iPhone, iPad and iPod has $98 billion in cash and securities, equal to about $104 a share, according to ISI Group analyst Brian Marshall.
The company said it anticipated using about $45 billion of domestic cash in the first three years of its buyback and dividend programs.
When asked about Apple's substantial cash parked overseas, Chief Financial Official Peter Oppenheimer said the company had no plans to repatriate it at this time.
"We think that the current tax laws provide a considerable economic disincentive to US companies that might otherwise repatriate the substantial amount of foreign cash that they have," he said. "That's our view. And we've expressed it. "