Dividend seen bringing $4B additional investment dollars to Apple

Posted:
in AAPL Investors edited January 2014
Though Apple has long resisted paying its shareholders a dividend, one new analysis suggests the company could gain an additional $4 billion in investments if it were to do so.



Analyst Brian Marshall with International Strategy & Investment Group said his firm's surveys have indicated most investors do not believe Apple will initiate a dividend policy in 2012. However, he believes now that Tim Cook is in charge of Apple, the CEO will make an effort to optimize his company's capital structure and will, in fact, pay out a dividend.



He believes that Apple could "easily" implement a dividend yield of 250 base points, amounting to about $2.40 per quarter. In Marshall's view, a dividend payout would reduce Apple's free cash flow by between 20 percent and 25 percent.



But he also estimates that a dividend yield would bring in more than $4 billion in incremental investments, which is why Marshall believes Cook will decide to change course for Apple.



Calls for a dividend from Apple are not new. In fact, in September, investment firm Morgan Stanley recommended that the iPhone maker use its massive cash hoard for either dividend payouts or share buybacks.



In October of 2010, Apple co-founder Steve Jobs appeared on his company's quarterly conference call and discussed what he might do with his company's cash pile. When asked by one analyst if he would return some of the money to investors in the form of a dividend, Jobs dismissed that possibility.



"We strongly believe one or more strategic opportunities will come along we're in a unique position to take advantage of," the late Apple CEO said in 2010. "We don't let the cash burn a hole in the pocket or make stupid acquisitions. We'd like to continue to keep our powder dry because we think there are one or more strategic opportunities in the future."







Apple has used its cash to its advantage for strategic investments, such as earlier this year when it paid $2.6 billion for its share of patents sold off by Nortel. Last year Apple also paid about $200 million to buy Siri, and the company's technology now powers the Siri voice recognition feature in the iPhone 4S.



The company has also leveraged its deep pockets to gain an advantage over rivals in the supply chain. By offering up-front payments for components such as flash memory, Apple has been able to block out the competition and secure its own inventory.



Those moves are made possible because Apple has more than $81.6 billion in cash, as of last quarter. With that cash, Apple has prepaid for NAND flash, displays, and other secret components, such as in a $3.9 billion deal the company revealed earlier this year.



Last month in its annual 10-K filing with the U.S. Securities and Exchange Commission, Apple officials revealed they expect their company to increase capital expenditures by 73 percent year over year in fiscal 2012. That would bring its projected expenses to $8 billion, compared with expenses of just $1.2 billion in 2009.
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Comments

  • 801801 Posts: 271member
    Can Apple pay dividends with the money that is "parked" overseas?
  • conradjoeconradjoe Posts: 1,887member
    My guess is that Apple is going to own Sprint within the next few years.



    Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.



    I've not seen anybody else express this guess. Have any of you guys?
  • digitalclipsdigitalclips Posts: 15,711member
    I have very mixed feelings on this subject. I'd love to get a dividend but I recognize the dangers of Apple going down this road and why Steve was against it. Perhaps there comes a point where Tim sees this as a benefit not a danger as the reserves are so high.
  • anantksundaramanantksundaram Posts: 17,384member
    Quote:
    Originally Posted by 801 View Post


    Can Apple pay dividends with the money that is "parked" overseas?



    No, it has to pay taxes on it first.
  • digitalclipsdigitalclips Posts: 15,711member
    Quote:
    Originally Posted by ConradJoe View Post


    My guess is that Apple is going to own Sprint within the next few years.



    Sprint bet the company, and incurred more debt to Apple than was wise. My guess is that all that debt is secured with first-priority security interests in all of Sprints assets. Sprint may well run into liquidity problems and be unable to pay its debts as they become due. Apple is in a perfect position to swoop in and cut a deal with the Trustee.



    I've not seen anybody else express this guess. Have any of you guys?



    What would be the business model going forward if such an acquisition were ever to happen as you see it?
  • anantksundaramanantksundaram Posts: 17,384member
    This analysis is a joke.



    Dividends have nothing -- repeat, nothing -- to do with free cash flow. Free cash flow is a firm's operating cash flow net of its investing cash flow, without consideration of any financing or payout effects.
  • mdriftmeyermdriftmeyer Posts: 6,924member
    Big deal.



    Apple will grow $20 Billion with the build out of all it's 4S country offerings and lower tier Telco offers, never mind far greater than that when they do crack that TV market.
  • nicolbolasnicolbolas Posts: 254member
    Quote:
    Originally Posted by AppleInsider View Post


    Though Apple has long resisted paying its shareholders a dividend, one new analysis suggests the company could gain an additional $4 billion in investments if it were to do so.



    Could Apple use 4 billion more dollars? Yes

    Does Apple NEED 4 billion more dollars? No

    Does Apple need dividends to keep shareholders happy? No

    Does Apple want to get money in short term? Yes

    Does Apple want to lose money in the long term? No





    so, they could give dividends, probably lose money in the long term, and it wouldn't benefit them...





    Any real reasons to do this?
  • chabigchabig Posts: 600member
    Even if another $4 billion is invested in Apple stock, the company doesn't get any of the money.
  • bluedjinnbluedjinn Posts: 56member
    ...mean to an individual shareholder?



    The article speculates on "250 base points, or $2.40 per quarter"



    Is that $2.40 per share? So, if I owned 100 shares of AAPL, would that mean I'd receive $240 per quarter, or $960 per year?
  • applestudapplestud Posts: 367member
    Quote:
    Originally Posted by anantksundaram View Post


    This analyst is a joke.



    Dividends have nothing -- repeat, nothing -- to do with free cash flow. Free cash flow is a firm's operating cash flow net of its investing cash flow, without consideration of any financing or payout effects.



    semantics aside, he's referring to total cash flow, which includes financing activities.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by 801 View Post


    Can Apple pay dividends with the money that is "parked" overseas?



    Depends. If the shareholder is in Germany and Apple has cash in Germany, they can pay the dividend without paying U.S. taxes. They will, of course, have to pay German taxes on the German income (but they have to do that whether they pay dividends or not) and the taxpayer pays taxes on the dividend (assuming that there are taxes on dividends in Germany).



    Quote:
    Originally Posted by chabig View Post


    Even if another $4 billion is invested in Apple stock, the company doesn't get any of the money.



    You beat me to it. This article was obviously written by someone who doesn't have a clue what they're talking about and the analyst should be put into chains on Wall Street so all the real experts can laugh at him.



    Adding value to Apple stock doesn't do a darned thing for Apple (at least, not directly). Share price increases slightly, but the people who benefit are the ones who already own the stock. The money doesn't go to Apple. (Of course, Apple might benefit indirectly by having happier shareholders, but that's not particularly important).



    It would, of course, benefit Apple if they were planning to issue any more shares to raise capital, but that doesn't appear the least bit likely.



    Furthermore, the math is ridiculous. They want Apple to spend $2 B per quarter on dividends in order to get a one time gain of $4 B in share price. If Apple were worried about propping up share prices, they would get an even greater benefit by simply buying back shares. One year's worth of dividends would allow them to buy back $8 B in shares - which would probably increase average share price more than the $4 B one-time gain the 'expert' is claiming.
  • jragostajragosta Posts: 10,473member
    Quote:
    Originally Posted by BlueDjinn View Post


    ...mean to an individual shareholder?



    The article speculates on "250 base points, or $2.40 per quarter"



    Is that $2.40 per share? So, if I owned 100 shares of AAPL, would that mean I'd receive $240 per quarter, or $960 per year?



    Correct.
  • anantksundaramanantksundaram Posts: 17,384member
    Quote:
    Originally Posted by AppleStud View Post


    semantics aside, he's referring to total cash flow, which includes financing activities.



    What is "total cash flow"!?
  • constable odoconstable odo Posts: 1,041member
    Apple doesn't give a damn about directly putting money into investor's pockets. Why should it? The company is more than sound as it is. The company designs consumer/tech goods and it's not some Wall Street investment firm. Apple needs to take every spare penny and invest it into building manufacturing facilities and advance purchasing of component supplies from multiple sources in order to build its economies of scale so large that not one competitor can touch it in price to quality value. If Apple continues on its present path for the next few years, it may be able to crush out nearly all of its current competitors. When it comes to consumer/tech companies it needs to be the biggest and strongest of the bunch and that's all that matters.



    Apple stock is completely manipulated by hedge funds so regardless of what Apple does the share price will never get much higher than it is now. Apple stock continues to sink in a climbing market despite selling products as fast as it can build them and doing far better than rival companies whose share prices are climbing. That alone indicates that there are criminals running Wall Street and Apple has no direct control over that.
  • kc_150kc_150 Posts: 28member
    I disagree to have dividend and stock price split as well. Keep the reserve to buy out Gxxgle and SamSxxg.
  • monstrositymonstrosity Posts: 2,113member
    Quote:
    Originally Posted by nicolbolas View Post


    Could Apple use 4 billion more dollars? Yes

    Does Apple NEED 4 billion more dollars? No

    Does Apple need dividends to keep shareholders happy? No

    Does Apple want to get money in short term? Yes

    Does Apple want to lose money in the long term? No





    so, they could give dividends, probably lose money in the long term, and it wouldn't benefit them...





    Any real reasons to do this?



    Aptly terse? NO!
  • john.bjohn.b Posts: 2,642member
    I forget, how many $350 billion dollar companies has Mr. Marshall operated?



    Oh, yeah, none. Maybe he should stick to what he knows and leave Apple to manage their own finances? They seem to be doing a damned good job at it...



  • satoricalsatorical Posts: 60member
    Like Apple needs more money. It would be a total waste of time for them to do something like this. I can't imagine its CFO suggesting this.
  • sevenfeetsevenfeet Posts: 339member
    The analysis forgets one thing. Paying a dividend is always a choice of the board of directors and although Tim Cook now sits there, everyone else (save Steve Jobs) is still there. Unless the other directors change their mind from the status quo, the situation will not change.
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