Apple Inc. (AAPL) is poised to boost its dividend by more than half, according to analysts surveyed by Bloomberg, providing investors hit by a share slump with one of the highest yields in the U.S. technology industry.
Apple will probably lift its quarterly dividend 56 percent to $4.14 a share, for an annual payout of $15.7 billion, according to the average estimate from six analysts. The resulting yield of 3.7 percent would be higher than 86 percent of the companies in the Standard & Poor's 500 Index paying dividends. Apple could fund a payout with existing cash flow without using profit from overseas, which can be subject to extra taxes, said Gene Munster, an analyst at Piper Jaffray Cos.
Chief Executive Officer Tim Cook, who a year ago this month reinstated a dividend and announced a $10 billion buyback, faces mounting pressure to take bolder steps to pay out more of Apple's $137.1 billion in cash and investments. Investors including David Einhorn's Greenlight Capital Inc. are pushing for more money as growth slows and competition from rivals such as Samsung Electronics Co. (005930) intensifies.
“The accumulation of cash has become excessive,” Brian White, an analyst at New York-based Topeka Capital Markets Inc., said in an interview. He rates the shares a buy, with an $888 price target. “It doesn't matter which bearish scenario you forecast, they're never going to need this much cash.”
Apple rose 1.8 percent to $451.50 at 12:57 p.m. in New York. Through March 15, the stock had declined 37 percent from a peak on Sept. 19, compared with a 6.8 percent gain for the Standard & Poor's 500 Index.
RETURNING CASH
Many companies announce dividend changes once a year, fueling speculation about Cook's plans as Apple approaches the anniversary of last year's announcement, which came on March 19. The CEO reinstated dividends after a 17-year hiatus, breaking with a pattern set by co-founder Steve Jobs, who sought to preserve capital.
Dividend predictions from analysts surveyed by Bloomberg range from $3.31 to $5.30 a share.
Apple has said it's in active discussions over how to manage the cash, and considering buybacks or a higher dividend among other options. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on the company's plans for the dividend or repurchase program.
Apple may add about $40 billion to $42 billion to its cash balance this year, according to Laurence Balter, an analyst at Oracle Investment Research who rates Apple a buy. Apple will generate about $15 billion of that in the U.S., he estimates, meaning it could pay that out in dividends without incurring taxes from bringing cash back from overseas.
VALUE DECLINE
“There has been almost a $300 billion decline in value of this company,” Balter, based in Fox Island, Washington, said in an interview. “Any CEO at the helm of any U.S. or international company that sat at their desk idly while this happened would be shown the door.”
Balter estimates Apple could spend $10 billion in a one- time payout, while boosting the quarterly dividend to $3.31 a share. Apple generated $42.6 billion in free cash flow in fiscal 2012, a 28 percent increase from a year earlier, according to data compiled by Bloomberg.
Einhorn's Greenlight, which says it holds more than 1.3 million Apple shares, is urging Apple to issue high-yielding preferred stock to carve out more cash for investors. Greenlight successfully sued to block a vote at Apple's shareholder meeting last month that would have required the company to seek investors' approval for creating preferred stock.
CAPITAL RETURNS
Apple could increase its payout incrementally. The company may raise its current quarterly payout of $2.65 by 13 percent to about $3 a share, for an indicated yield of 2.7 percent, according to a Bloomberg projection. That would give it one of the highest yields among peers, after Intel Corp. (INTC) and Microsoft Corp. (MSFT) Bloomberg analysts take into account the payouts of other large technology companies, Apple's projected earnings for next year and the amount of money on its balance sheet.
For any higher return of cash, Apple could borrow against money held overseas, a move that would take advantage of low interest rates without incurring taxes from repatriation, according to Ben Reitzes, an analyst at Barclays Plc's investment banking unit. Apple could also triple its buyback program to $30 billion over three years, he said.
“Apple has the potential to double its level of capital returns if the company makes complete use of its balance sheet,” Reitzes wrote in a research report. He has the equivalent of a buy rating for Apple, with a $530 target price.
VALUAITION DISCOUNT
After commanding a premium for most of the past decade, Apple is trading at a discount of 34 percent to the Standard & Poor's 500 Index on a price-earnings basis, according to data compiled by Bloomberg.
The slump has even pushed Apple's price-to-earnings multiple below Microsoft's this year for the first time since January 2002, according to weekly data compiled by Bloomberg. Apple is trading at about 10 times earnings, while Microsoft, which has suffered as smartphones have replaced personal computers and no longer ranks among the world's 10 most valuable companies, is valued at about 11 times, the data show.
Apple has been grappling with investor criticism about its cash for years. Apple suspended its dividend in 1995 amid leadership upheaval and dwindling computer-market share. Near bankruptcy before Jobs returned to the company in 1997, the cash balance swelled after he successfully introduced such products as the iPod, iPhone and iPad.
While the company tried to address the growing cash pile last year by restoring the dividend, many investors have been seeking more.
INVESTOR BOOST
“I'm frankly puzzled myself as to why they seem so slow to make a decision on this,” Keith Goddard, president of Capital Advisors Inc., said in an interview.
Apple will probably announce a dividend or buyback by the end of the year, possibly as early as April, when the company is scheduled to release second-quarter earnings, according to Goddard, who said his firm owns 29,290 Apple shares.
A quarterly $3-a-share payout would mean a total annual gain of $1.6 billion for Apple's top three institutional investors --
BlackRock Inc., Vanguard Group Inc. and FMR LLC -- which combined own about 133.4 million shares, according to data compiled by Bloomberg.
“It'll give a security net for the stock,” White said. “You need to attract new investors, and I think one way to do that is to pay out a bigger dividend.”
--Bloomberg News--
