Higher dividend viewed as 'safety net' that could help turn around Apple stock

Posted:
in AAPL Investors edited January 2014
It's been exactly one year since Apple announced it would begin paying a quarterly dividend of $2.65 per share. Now, in light of the company's recent stock woes, calls for Apple to increase that dividend are growing.

Brian White of Topeka Capital Markets outlined on Tuesday his suggestions for what Apple could do to boost its stock price. Unlike some analysts who have become bearish on Apple in light of the stock's recent struggles, White remains optimistic with an $888 price target that's nearly double the company's current share value.

Asymco
Apple's growing cash, cash equivalents, and securities, via Asymco.


His plan starts with a larger cash distribution that he believes would create a "safety net" around Apple's stock. In what he referred to as "phase one," he believes Apple should increase its quarterly dividend to between $3.75 and $5.00 per share.

"At the same time, Apple has plenty of room to ramp up the stock repurchase program to as high as $100 billion as part of a five-year initiative," he said. "If debt is part of the equation, investors will be more than happy to see Apple assume leverage to pay out more cash."

For "phase two" of White's proposal to turn AAPL stock around, he believes the company must "put a trough in its profit cycle." He expects that to come in the current quarter, where he is projecting a 19 percent year over year decline before returning to positive territory in the following quarter.

Finally, "phase three" calls for Apple to "open up new growth opportunities." White cited markets where the company is currently missing out, such as low-end smartphones and a partnership with the world's largest carrier, China Mobile, as potential examples.

In addition, he also believes Apple should enter into totally new product categories, including a full-fledged Apple television set and a smart watch for added growth.

White has been a vocal proponent of Apple boosting its dividend payout in recent weeks. Earlier this month he said he believes the "timing could be right" for Apple to announce a larger dividend, considering that the company's annual shareholder meeting has just concluded, and a push for preferred share stock from hedge fund manager David Einhorn has faded away.

Discussion of a dividend has also grown as Apple's cash pile continues to amass, reaching $137 billion at the end of the previous quarter. One new projection this week found that Apple's cash and investments could reach $170 billion this year.
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Comments

  • Reply 1 of 112
    There they go again. Yanking the chain for more dividends. This is what happens when you allow the dividend camel to get a nose in the cash tent. They are relentless.

    Just do a massive share repurchase to keep as treasury stock, and get on with it. Apart from a myriad other pluses, it'll also clean out the stables, allowing all those who have a negative view of Apple to sell and get out.
  • Reply 2 of 112
    robin huberrobin huber Posts: 3,235member
    Hello, Apple announced dividend increase, it was in my local rag this morning. Wake up, AI.
  • Reply 3 of 112
    MacProMacPro Posts: 18,013member
    Hello, Apple announced dividend increase, it was in my local rag this morning. Wake up, AI.

    I can't find any actual statement from Tim yet. Has it happened yet?
  • Reply 4 of 112

    Quote:

    Originally Posted by Robin Huber View Post



    Hello, Apple announced dividend increase, it was in my local rag this morning. Wake up, AI.


    What are you talking about? Which 'local rag'? Cite?

  • Reply 5 of 112


    I own aapl stocks but I DO NOT want dividend. Dividend is just to please the shareholders on the short term basis and drain the company's cash.


     


    LISTEN TO Warren Buffett.  Do the STOCK BUYBACKS on a bigger scale, acquisitions and innovate!

  • Reply 6 of 112
    normmnormm Posts: 545member
    Hello, Apple announced dividend increase, it was in my local rag this morning. Wake up, AI.

    Nothing on Google News about this. I don't understand how increasing the dividend is supposed to affect investor behavior. AAPL stock typically changes by $5 per day. How would a quarterly dividend of $5 change investor behavior? I think this is all just Wall Street pundits foaming at the mouth.
  • Reply 7 of 112
    jragostajragosta Posts: 10,473member
    I can't find any actual statement from Tim yet. Has it happened yet?

    No. Apple's official SEC documents say nothing about it.

    What he may be referring to is this piece. Just more of the same nonsense from the analysts:
    http://www.bloomberg.com/news/2013-03-18/apple-seen-raising-dividend-more-than-50-to-16-billion.html
  • Reply 8 of 112
    robin huberrobin huber Posts: 3,235member


    My bad. Wife read me the story making it sound like it happened. When I checked it was just quoting a Bloomberg story saying they "probably" will boost it by 50%. 

  • Reply 9 of 112

    Quote:

    Originally Posted by helicopterben View Post


    I own aapl stocks but I DO NOT want dividend. Dividend is just to please the shareholders on the short term basis and drain the company's cash.


     


    LISTEN TO Warren Buffett.  Do the STOCK BUYBACKS on a bigger scale, acquisitions and innovate!



    Agreed. Dividend is nothing but losing shareholders money (because of double taxation, and transaction costs).


     


    Apple should buy back shares, because they are heavily undervalued.

  • Reply 10 of 112

    Quote:

    Originally Posted by anantksundaram View Post


    What are you talking about? Which 'local rag'? Cite?



    This was really all I could find online.


     


    http://www.bloomberg.com/news/2013-03-18/apple-seen-raising-dividend-more-than-50-to-16-billion.html

  • Reply 11 of 112

    Quote:

    Originally Posted by Robin Huber View Post


    My bad. Wife read me the story making it sound like it happened. When I checked it was just quoting a Bloomberg story saying they "probably" will boost it by 50%. 



    Ah got it. It's simply quoting an average of the estimates of six idio..... er, analysts.

  • Reply 12 of 112
    matrix07matrix07 Posts: 1,993member


    I think it is clear now. Wall Street want Apple money and try to manipulate it. 

  • Reply 13 of 112
    rayzrayz Posts: 814member


    As a non-investor (in anything) could someone tell me why Apple needs to worry about the stock price? I mean it's not as if they need the cash, so if the stock crashed to $10 then how would that affect Apple?


     


    Microsoft's stock hasn't moved in ten years, and the effect on the company appears to be zilch. In fact, no one seems to give them any grief about it at all, so they're free to do whatever it is they're doing without any distraction.

  • Reply 14 of 112
    mj webmj web Posts: 918member
    Seems White is suggesting AAPL's management needs an epiphany or a change at the top. If AAPL released a special dividend last December like Wall Street expected -- and numerous companies did and were rewarded with loyalty for -- AAPL's stock wouldn't be in the doldrums it presently is.

    Now let's see if Tim Cook can "grow some smarts" and do the right thing.
  • Reply 15 of 112
    jragostajragosta Posts: 10,473member
    rayz wrote: »
    As a non-investor (in anything) could someone tell me why Apple needs to worry about the stock price? I mean it's not as if they need the cash, so if the stock crashed to $10 then how would that affect Apple?

    Microsoft's stock hasn't moved in ten years, and the effect on the company appears to be zilch. In fact, no one seems to give them any grief about it at all, so they're free to do whatever it is they're doing without any distraction.

    You are mostly correct. A drop in share price has no DIRECT impact on the company unless it's planning to sell shares. However, there are some indirect effects that are important:

    1. In most tech companies, stock options are an important part of the incentive package, especially for senior employees. Options only become valuable (usually) when share prices increase, so employees like to see rising share prices.

    2. The entire "Apple is dying" or "Apple has lost its mojo" or "Apple no longer innovates" crap that is driving the stock down has an impact in the market place. Customers who see Apple in a positive light and see them as market leaders and innovators are more likely to buy their products. A false perception that Apple is doomed could scare customers away.

    3. Similarly, a strong Apple is in a stronger negotiating position on acquisitions, purchasing, etc.
  • Reply 16 of 112


    Serious question: Why the hell would Apple want to turn around APPL stock? For what, exactly? Aren't things perfect (for Apple) as they are? Isn't Apple the most lucrative company in the world (right now)? Why would they change something related to their stock?


     


    Wouldn't they want the exact opposite? Since they don't need anyone's help/money, wouldn't be better for shares to fall so they can buy enough to go private?

  • Reply 17 of 112

    Quote:

    Originally Posted by Rayz View Post


    As a non-investor (in anything) could someone tell me why Apple needs to worry about the stock price? I mean it's not as if they need the cash, so if the stock crashed to $10 then how would that affect Apple?


     


    Microsoft's stock hasn't moved in ten years, and the effect on the company appears to be zilch. In fact, no one seems to give them any grief about it at all, so they're free to do whatever it is they're doing without any distraction.



    The impact is usually indirect, and somewhat longer-term.


     


    1) It could be huge de-motivator for employees whose compensation is dependent on options or stock grants if they were granted at higher prices. (Potentially an issue for Apple).


     


    2) It increases your cost of capital, especially if you want to raise equity (directly) or debt (indirectly). (Not an issue for Apple).


     


    3) If you need to raise new capital by issuing shares, you have to give away a larger slice of ownership, i.e., claim to future cash flows, to raise the same amount of money as when the share price is higher. (Not an issue for Apple).


     


    4) If you have convertible or other types of mezzanine debt, lower stock prices could render the conversion option moot, forcing the company to raise new cash to pay principal. (Not an issue for Apple).


     


    5) Wealth destruction on a massive scale -- which is what we have seen in the last 6 months, with well over $200B in shareholder wealth wiped out for Apple shareholders -- simply creates and perpetuates a negative view on a company's management, leading stakeholders to question, rightly or wrongly, their quality and competency on whole host of fronts! Just think of the views on Steve Ballmer here, for instance..... (Potentially an issue for Apple).


     


    6) Negative investor sentiment invites activist investor attention (as has begun with Apple), simply wasting management's time and distracting them from the real things that they need to get done. The focus shifts heavily to financial engineering and nonsense related to managing investor clientele. (Potentially an issue for Apple).


     


    and......


     


    7) .... as jragosta points out above, higher stock price means a more 'valuable' currency with which to undertake acquisitions. (Not an issue for Apple, given the size of its cash hoard and any likely targets).

  • Reply 18 of 112
    mj webmj web Posts: 918member

    Quote:

    Originally Posted by pedromartins View Post


    Serious question: Why the hell would Apple want to turn around APPL stock? For what, exactly? Aren't things perfect (for Apple) as they are? Isn't Apple the most lucrative company in the world (right now)? Why would they change something related to their stock?


     


    Wouldn't they want the exact opposite? Since they don't need anyone's help/money, wouldn't be better for shares to fall so they can buy enough to go private?



    Right, sure, why doesn't Tim Cook take AAPL private -- is that what you're suggesting? 

  • Reply 19 of 112

    Quote:

    Originally Posted by pedromartins View Post


    Serious question: Why the hell would Apple want to turn around APPL stock? For what, exactly? Aren't things perfect (for Apple) as they are? Isn't Apple the most lucrative company in the world (right now)? Why would they change something related to their stock?


     


    Wouldn't they want the exact opposite? Since they don't need anyone's help/money, wouldn't be better for shares to fall so they can buy enough to go private?



    Don't executives in Apple have shares? Don't they want to please shareholders, along with the average customers?

  • Reply 20 of 112

    Quote:

    Originally Posted by MJ Web View Post


    Right, sure, why doesn't Tim Cook take AAPL private -- is that what you're suggesting? 



    My questions were clear.


    But yes, I would like that. People that understand 0 about how Apple operates (and has been doing since 98) shouldn't been allowed to own a single share of APPL.



    Quote:

    Originally Posted by greendisease View Post


    Don't executives in Apple have shares? Don't they want to please shareholders, along with the average customers?


     




    There's other ways to pay/motivate executives in Apple. Being the ones changing the world is one of them.


    Average costumers? They already do that, by providing the best products.


     


    Shareholders? For what?

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