Dividend seen bringing $4B additional investment dollars to Apple
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.
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.
Comments
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?
Can Apple pay dividends with the money that is "parked" overseas?
No, it has to pay taxes on it first.
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?
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.
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.
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?
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?
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.
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).
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.
...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.
semantics aside, he's referring to total cash flow, which includes financing activities.
What is "total cash flow"!?
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.
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!
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...