Apple's cash options include ongoing or special dividends, share buyback

Posted:
in AAPL Investors edited January 2014


Apple's most likely use for its $100 billion cash balance is seen as an ongoing dividend, though other options include a special dividend or share buyback.



Analyst Mike Abramsky with RBC Capital Markets believes that Apple will offer a $10-per-share ongoing annual dividend, which would be a slight premium over the company's peers. That would amount to $9.4 billion, or 25 percent of its estimated fiscal 2012 free cash flow estimate for the company.



In comparison, Microsoft, IBM, Oracle, Intel, Qualcomm, Cisco and Hewlett-Packard all pay out dividends at 21 percent of free cash flow. In addition, a $10-per-share annual dividend would be a 1.7 percent yield rate, comparable with other tech companies that are around 1.8 percent.



While Abramsky sees the ongoing cash dividend as the most likely option, he said another possible scenario is that Apple decides to dole out a special dividend to investors. He estimates that Apple could declare a $60-per-share one-time dividend, which would be comparable to Microsoft's 2004 special dividend in which it used 58 percent of its cash.



If Apple does decide to do a special dividend, he expects that AAPL shares will drop by the value of the one-time dividend after it is paid to investors.



A third option for Apple is a share buyback. If the company were to use 25 percent of its free cash flow, he estimates Apple could repurchase 16 million shares annually.





Chart via Horace Dediu of Asymco.







"An ongoing dividend and/or special dividend or share buyback signals a new phase for Apple, one of less rapid, but still above-peer growth and margins," Abramsky wrote. "Distributing some of its large cash balance back to shareholders addresses and overhanging issue which has weighed on valuation."



Apple will hold a conference call with Chief Executive Tim Cook and Chief Financial Officer Peter Oppenheimer this morning at 9 a.m. Eastern, 6 a.m. Pacific to discuss what it plans to do with its $100 billion cash balance. AppleInsider will have full, live coverage.



[ View article on AppleInsider ]

Comments

  • jonoromjonorom Posts: 293member
    If there is one thing we can bet on, it is that Apple will do the unusual here.
  • technotechno Posts: 601member
    Quote:
    Originally Posted by JONOROM View Post


    If there is one thing we can bet on, it is that Apple will do the unusual here.



    Free iPad to each share holder!
  • rabbit_coachrabbit_coach Posts: 1,114member
    I think with a special dividend $60 we could all live. the shares would drop eventually, but regain traction after 1-2 weeks. I would probably immediately reinvest what is gained. My guess, within 2 months they would be knocking at $600 again.

    and then happy me.



    I hope --- ?
  • thataveragejoethataveragejoe Posts: 830member
    CNBC confirming:

    Apple Sets Quarterly Dividend of $2.65/Share; Board OKs $10B Buyback, Says It Expects to Spend $45B Over 3 Years



    and Apple:

    http://www.apple.com/pr/library/2012...e-Program.html
  • rabbit_coachrabbit_coach Posts: 1,114member
    Quote:
    Originally Posted by techno View Post


    Free iPad to each share holder!



    That indeed would be kind of unprecedented. But probably a bit of unfair against people who hold thousands of APPL shares. To those big investors one iPad seems a bit minimalistic. But nice for all the poor chaps who own only one share.





    Hmm... Sounds like a very radical socialistic move. Not sure wether Apple goes that path.
  • greginpraguegreginprague Posts: 415member
    Quote:
    Originally Posted by thataveragejoe View Post


    CNBC confirming:

    Apple Sets Quarterly Dividend of $2.65/Share; Board OKs $10B Buyback, Says It Expects to Spend $45B Over 3 Years



    and Apple:

    http://www.apple.com/pr/library/2012...e-Program.html



    Why would they put out the press release before the conference call? What is the advantage in stealing Cook and Openheimer's thunder?



    I'm happy with the regular dividend. Interesting that the buyback is merely going to neutralize the internal stock options and grants.
  • huntercrhuntercr Posts: 140member
    Quote:
    Originally Posted by thataveragejoe View Post


    CNBC confirming:

    Apple Sets Quarterly Dividend of $2.65/Share; Board OKs $10B Buyback, Says It Expects to Spend $45B Over 3 Years



    and Apple:

    http://www.apple.com/pr/library/2012...e-Program.html



    I'm still chewing on this, but I feel slightly disappointed. I really didn't want them to do the dividend, but I would have accepted it. The buy back is just silly. $10B of buy back would only add approximately $10.72 to each share value. ( $10B/932M shares outstanding )

    The announcement alone seems to have done that.



    Any finance people want to explain the why and how here?
  • irontedironted Posts: 121member
    Quote:
    Originally Posted by huntercr View Post


    I'm still chewing on this, but I feel slightly disappointed. I really didn't want them to do the dividend, but I would have accepted it. The buy back is just silly. $10B of buy back would only add approximately $10.72 to each share value. ( $10B/932M shares outstanding )

    The announcement alone seems to have done that.



    Any finance people want to explain the why and how here?







    The way I see it, Apple would become another Microsoft pretty soon. This company is going down!
  • godzillagodzilla Posts: 156member
    Quote:
    Originally Posted by IronTed View Post


    The way I see it, Apple would become another Microsoft pretty soon. This company is going down!



    That made me LOL.



    .... At you, not with you.
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