A $10 billion share buyback program will begin next fiscal year, which starts Sept. 30, and run for three years.
Apple is sitting on $97.6 billion in cash and securities. For years, it has resisted calls to reward shareholders with some of that money. Since the death of CEO Steve Jobs, management has signaled that it's been considering options for the money.
Apple has been using cash for its business, for instance by investing in long-term supply contracts for crucial components. Cook said the dividend and buyback won't prevent it from important investments in the future.
"These decisions will not close any doors for us," he told analysts and reporters on a conference call Monday morning.
The dividend will cost Apple about $10 billion annually. That's less than the cash the company generates, so its cash levels will continue to grow, but at a slower rate. Apple generated $31 billion in cash in the fiscal year that ended in September.
Apple shares have risen 37 percent since Oppenheimer said on Jan. 24 that Apple's board was in "active" discussions about the use of cash.
On Monday, shares rose $15.53, or 2.65 percent, to close at $601.10. Just before the announcement, the shares were above $600.
The dividend opens up ownership of Apple shares to a wider range of funds. Many "value-oriented" funds are not allowed to buy stocks that don't pay dividends.
Buybacks are a popular alternative to dividends, since they reduce the number of shares outstanding. That means every remaining investor has title to a larger share of the company.
Cook said the main point of Apple's buyback is to offset the shares issued to reward the Cupertino, Calif., company's employees.
The dividend and buyback announcement comes three days after the launch of Apple's latest iPad tablet in the U.S. and nine other countries.
Apple’s shares are up 45 percent this year after releasing a new iPad last week and announcing blowout iPhone sales in January, but many believe the rally had been in anticipation of a dividend payout.
—Reuters contributed to this report.