2%-3% dividend suggested as best use of Apple's $100B in cash

Posted:
in AAPL Investors edited January 2014


The best use of Apple's nearly $100 billion in cash and investments would be to issue shareholders a dividend yield of between 2 percent and 3 percent, a new analysis argues.



Shaw Wu with Sterne Agee said in a note to investors on Friday that he believes it makes the "most sense" for Apple to pay a dividend to investors with its growing cash hoard. He thinks a yield in the 2 percent to 3 percent range would be "very attractive" for shareholders as well as employees.



"The reason is that the company's strong cash flow should be able to fund this (which we estimate could be $75-$80 billion in the next four quarters vs. the $45.3 billion we estimate the company generated in the last four quarters)."



In the company's most recent quarterly earnings report, Apple executives indicated they are "actively discussing" what to do with $96.7 billion in cash the company had as of the previous holiday quarter. Its stockpile of cash and reserves grew $16 billion in that three-month period alone.



"We're actively discussing uses of our cash balance, and have no specifics to share," Apple Chief Financial Officer Peter Oppenheimer said. "In the meantime, we continue to be disciplined with cash, and are not letting it burn a hole in our pockets."



Wu cited two of Apple's peers, Microsoft and Intel, which are components of the Dow Jones Industrial Average and are considered to be blue chip technology companies. Microsoft pays a dividend yield of 2.6 percent, while Intel's dividend yield in 3.2 percent.



"The other positive outcome from paying a dividend is that it would bring in a new class of investors where funds that only invest in dividend paying stocks could now own AAPL shares," Wu said. "We believe this should help further stabilize its shareholder base."











The analyst's research note comes ahead of Apple's annual shareholders' meeting, set to take place on Feb. 23. He admitted that the "exact timing is tough to predict" on when or even if Apple will begin issuing dividends to investors.



Calls for a dividend have only increased as Apple's cash hoard has grown exponentially. But executives at Apple have long resisted investor pressure to dole out a dividend.



Without a dividend, AAPL stock has soared to new heights as the company continues to deliver record breaking quarters. On Thursday, Apple's market capitalization grew so much that the company is now worth more than rivals Microsoft and Google combined.



Sterne Agee has maintained its "buy" rating on AAPL stock, with a price target of $550.



[ View article on AppleInsider ]

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Comments

  • charlitunacharlituna Posts: 7,069member
    Of course a STOCK analyst, who lives and dies by folks making money off their stocks is going to have this opinion.



    Doesn't mean Apple would do it
  • rob53rob53 Posts: 1,288member
    @charlituna: I couldn't agree more. I'm just glad analysts don't run Apple. We've all seen how they ruin companies and the economy with their "intelligent" decisions.
  • friedfandangofriedfandango Posts: 2member
    With Apple incredibly focused on providing great customer service experiences I think they should use their hoard to buy out all their third party vendors in AppleCare and bring the customer support experience in house. Not sure the hoard is big enough to afford that but it would give them the end to end control that they want in every other aspect of their business.
  • tundraboytundraboy Posts: 1,437member
    Though I'm not for it, I can probably live with a dividend but a share buyback program would send me into conniptions.



    Given that Apple is moving wholesale into mobile and cloud computing, I'd prefer that Apple keep piling up its cash so that it can easily buy up T-Mobile and/or Comcast in case any of the wired and wireless carriers puts the squeeze on Apple. Not all of that $100B is held in the US so really their buy-me-a-carrier fund isn't where it should be yet.
  • applezillaapplezilla Posts: 941member
    I think the best use of this money would be to buy up several hundred acres of former factory sites in the United States, move All production here, and slap 'Made in USA' stickers on every product box.



    Detroit is calling.
  • jragostajragosta Posts: 10,473member
    Why does anyone pay attention to Shaw Wu?



    As bad as most analysts are, Wu probably has the record for being wrong about Apple more than anyone.
  • bokapbokap Posts: 19member
    Can someone explain how dividends are determined. If Apple pays 3% dividend, is it 3% of what?

    Thanks,

    Bob
  • gprovidagprovida Posts: 206member
    Also real value to stockholders is tough to sort out when tax etc is applied. Also not sure best practice is worth anything. If Apple followed that theory in the past it would not be a successful company.
  • williamhwilliamh Posts: 279member
    Quote:
    Originally Posted by AppleZilla View Post


    I think the best use of this money would be to buy up several hundred acres of former factory sites in the United States, move All production here, and slap 'Made in USA' stickers on every product box.



    Detroit is calling.



    Great way to distribute that cash horde to the proletarians. Only problem is that if packing fruit is work that "Americans don't want to do," how do you think you'll get people to put together iPhones? It's pretty difficult and tedious work. The workers won't be more productive and they will cost much more, and that will lead to a non-competitive retail price. I'm sure you feel really badly for those people that volunteer to work in Chinese factories, but you'll be buying a Samsung when an iPhone costs $1500 and has that famous Detroit quality. (I've put a few together myself, after having taken them apart.) Brazil is calling.
  • cgjcgj Posts: 276member
    AppleInsider: You spelt 'worst' wrong.
  • luxom3luxom3 Posts: 96member
    Apple has close to $100B in cash!

    In perspective the UN said you can solve worldwide hunger for $30B.



    Even if Apple paid 2% which is more than a savings account has in the past 10 years - at their current pace, they'd still have $100B left by end of quarter.



    Yes the 2% is paltry if you bought the stock at $400+.

    But if you were an early investor and want to stay with Apple that 2% would pay a lot of IRAs and 401ks for your grand folks.



    Also the thing about no-div stocks, they are worthless until you SELL them.



    As wonderful as Apple is today, there is tomorrow.

    Remember when Google was invincible a few years ago?
  • mcarlingmcarling Posts: 1,095member
    Quote:
    Originally Posted by bokap View Post


    Can someone explain how dividends are determined. If Apple pays 3% dividend, is it 3% of what?



    3% of earnings (profits).



    I think paying a dividend is a bad idea. If Apple want to return cash to shareholders, a buyback program would be better.



    I'd rather see Apple buy Microsoft, keep the Mac Business Unit and all the intellectual property, continue selling the software already on the market, and shut down MS Windows development, Windows Mobile, Xbox, etc. as they stop generating revenue.
  • williamhwilliamh Posts: 279member
    Quote:
    Originally Posted by bokap View Post


    Can someone explain how dividends are determined. If Apple pays 3% dividend, is it 3% of what?

    Thanks,

    Bob



    Apple can announce a dividend in any amount they think they can sustainably pay out. The dividend yield is a percentage of the share price. Thus, if the dividend amount stays the same, the yield will rise and fall with the price of the stock. We're talking about a potential $5-$10/share dividend, I think.
  • astra4astra4 Posts: 45member
    I say put the money into cloud infrastructure, then let them developer folks develop cloud apps for it, and take a 30 cut of the proceeds as usual :-)
  • mcarlingmcarling Posts: 1,095member
    Quote:
    Originally Posted by LuxoM3 View Post


    In perspective the UN said you can solve worldwide hunger for $30B.



    Then we would have an even worse global overpopulation problem, faster deforestation, and an even worse environmental disaster. No thank you. People who cannot feed themselves should not be breeding.
  • prof. peabodyprof. peabody Posts: 2,860member
    Quote:
    Originally Posted by AppleInsider View Post


    The best use of Apple's nearly $100 billion in cash and investments would be to issue shareholders a dividend yield of between 2 percent and 3 percent, a new analysis argues. ...



    In other words, let's pour 2 or 3 percent down the toilet.



    Dividends are so last century. Everyone knows they don't do anything but waste money. A lot of rich folks will get marginally richer and everyone gets a free vacation that year. Big deal.



    It won't help the company in any way. It won't help them make better products, or cheaper products or more products. Just the opposite in fact.
  • mcarlingmcarling Posts: 1,095member
    Quote:
    Originally Posted by williamh View Post


    Apple can announce a dividend in any amount they think they can sustainably pay out. The dividend yield is a percentage of the share price. Thus, if the dividend amount stays the same, the yield will rise and fall with the price of the stock. We're talking about a potential $5-$10/share dividend, I think.



    Incorrect.
  • cvaldes1831cvaldes1831 Posts: 1,832member
    Quote:
    Originally Posted by jragosta View Post


    Why does anyone pay attention to Shaw Wu?



    As bad as most analysts are, Wu probably has the record for being wrong about Apple more than anyone.



    Not quite, but still pretty bad.



    Shame that AI continues to ignore analysts' track records, particularly those of oft-quoted, typically-wrong Shaw Wu, Gene Munster, and Katy Huberty.



    And once again, I will point out that whatever these analysts say, Apple is most likely not to do what they are predicting.



    Frankly, I think a share buyback would be more likely than a dividend.
  • red oakred oak Posts: 532member
    Quote:
    Originally Posted by williamh View Post


    Apple can announce a dividend in any amount they think they can sustainably pay out. The dividend yield is a percentage of the share price. Thus, if the dividend amount stays the same, the yield will rise and fall with the price of the stock. We're talking about a potential $5-$10/share dividend, I think.



    It's 3% of the stock price. So, if Apple is at $500, then the payout at 3% would be $15/share. The percentage would go up/down as Apple's stock does. The dollar amount would only change when Apple management makes an adjustment
  • stelligentstelligent Posts: 2,680member
    Quote:
    Originally Posted by jragosta View Post


    Why does anyone pay attention to Shaw Wu?



    As bad as most analysts are, Wu probably has the record for being wrong about Apple more than anyone.



    On this, I couldn't agree more. Doesn't his company have annual performance reviews where they might bring up his unproven predictions one by one?
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