Apple announced it a shareholder dividend and stock buyback program on Monday, and Sterne Agee analyst Shaw Wu thinks the plan is a good idea. Company CEO Tim Cook and CFO Peter Oppenheimer discussed the program during a special conference call with analysts early Monday morning.
“We believe paying a dividend makes a lot of sense for both shareholders and employees given the company’s high profitability and strong ability to generate free cash flow,” Mr. Wu said.
The company will launch its US$2.65 per share dividend before the end of its fiscal year this fall, and will start a three-year program to buy back some $10 billion in shares before the end of the calendar year.
Currently, Apple has over $97 billion in cash to work with.
“We estimate that AAPL will likely generate $75-80 billion in free cash in the next four quarters versus the $45.3 billion we estimate the company generated in the previous four quarters,” Mr. Wu said. “And that’s why we estimate and believe paying a dividend yield in the 2-2.5 percent range makes sense.”
He added, “The other reason to pay a dividend is that a growing number of funds are focused on delivering yields and stocks that pay dividends. We believe this would expand and stabilize Apple’s shareholder base.”
Mr. Wu is maintaining his “Buy” rating and $620 target price for Apple’s stock. Apple is currently trading at $592.54, up 6.97 (1.19%).