Apple set to raise dividend by more than half

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 probably will lift its quarterly dividend 56% 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% would be higher than those of 86% of the companies in the S&P 500 that pay 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 Tim Cook, who a year ago this month reinstated a dividend and announced a $10 billion share 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. intensifies. “The accumulation of cash has become excessive,” said Brian White, an analyst at Topeka Capital Markets Inc., who 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 shares are trading at about $450. Through March 15, the stock had declined 37% from a peak Sept. 19, compared with a 6.8% gain for the S&P 500.

RETURNING CASH

Many companies announce dividend changes once a year, fueling speculation about Mr. Cook's plans. He reinstated dividends on March 19, 2012, 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 that it is in active discussions over how to manage the cash and considering buybacks or a higher dividend, among other options. Apple spokesman Steve Dowling declined to comment about 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 the stock a “buy.” Apple will generate about $15 billion of that in the United States, meaning that it could pay that out in dividends without incurring taxes from bringing cash back from overseas, he said. “There has been almost a $300 billion decline in value of this company,” Mr. Balter said. “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.” Mr. Balter estimates that 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% increase from a year earlier, according to data compiled by Bloomberg.

PREFERRED ROUTE

Greenlight, which says it holds more than 1.3 million Apple shares, is urging the company 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. Apple could increase its payout incrementally. The company may raise its quarterly payout of $2.65 by 13% to about $3 a share, for an indicated yield of 2.7%, according to a Bloomberg projection. That would give it one of the highest yields among its peers, after Intel Corp. (INTC) and Microsoft Corp. (MSFT). The analysts took 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. --Bloomberg News-- “Apple has the potential to double its level of capital returns if the company makes complete use of its balance sheet,” Mr. Reitzes wrote in a research report. He has the equivalent of a “buy” rating on Apple shares, with a $530 target price.