Another Analyst Predicting Apple Dividend Within 18 Months

| Apple Stock Watch

Another Wall Street analyst is predicting that Apple will engage in both a stock buyback and a shareholder dividend in the next 12-to-18 months. Abhey Lamba of the ISI Group issued a report Wednesday that said Apple was likely to use some of its ongoing cash generation to return US$15 billion or so to shareholders.

Abhey Lamba Interviewed on Bloomberg

Abhey Lamba Interviewed on Bloomberg

The central premise of Mr. Lamba’s research note was to compare the Walt Disney Corporation of the 1960s when Walt Disney lost its founder to the Apple of today, whose cofounder Steve Jobs stepped down as CEO in August. Mr. Lambda noted that Disney’s stock continued to perform very well after the death of Walt Disney, and he said that he believes Apple’s stock will continue to do well without Steve Jobs as CEO (Mr. Jobs is, of course, chairman of Apple’s board).

He believes that Apple’s product pipeline for the next two to three years is already assured, and noted that one thing that isn’t changing at Apple is the operational excellence that was the result of newly ordained CEO Tim Cook’s management.

The focus of our coverage is on Mr. Lamba’s belief that Apple will begin returning some of its vast cash generation to its shareholders. He said that in addition to the US$76 billion that Apple already has in cash, the company is generating $35 to $40 billion in new cash flow per year.

He noted that Intel is currently offering about a 4% dividend and said that if Apple were to do the same thing the company could return $$15 per share as a dividend (with 927 million shares outstanding, that would work out to about $13.9 billion) and still have “about $25 billion” in cash flow left over, and that’s without touching the $76 billion hoard on the books.

“Up until now,” he told Bloomberg in an interview, “investors have been asking for it, but they were patient because Steve Jobs was in control and they wanted to give him free rein in what he wanted to do with the cash. With him stepping down as CEO, we think that [call for a dividend] should grow louder.”

He said that he didn’t think Apple would start at 4%, however, saying that a 1% or 2% return would be more realistic.

Mr. Lamba’s opinion is similar in nature to a research note from Katy Huberty of Morgan Stanley that hit the wild on Monday. Ms. Huberty said she expected Apple to return $25 billion to shareholders in either a share buyback, a divided, or both.

For many years, there has been a growing call from institutional investors and some analysts for Apple to return some of its large cash hoard to shareholders in the form of either a regular dividend, a one-time dividend, or in a stock buyback. Apple has always demurred, saying it “wanted to keep our powder dry” and other euphemisms, and it’s well known that the company has regularly used that money to secure favorable component contracts in its supply chain.

As the money continues to pile up, however, as Mr. Lamba noted, those calls from investors are likely climb, too, especially with a leadership change to act as a catalyst.

Shares in AAPL rose in Monday’s mid-afternoon session to $390.93, up $6.31 (+1.64%).

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

mhikl

I believe Walt?s head is in the freezer unless someone used it for soup, so he is still sort of CEO in-waiting, back stage.

I know even less about shareholder dividends but think it is used by twilight enterprises like IBM and MicroSoft to keep them relevant when they have lost the hormones for growth. Apple has plenty growth left. Buy back would seem a smarter strategy but that again is not an issue I have much knowledge or interest.

aardman

“Return” the cash to the shareholders.  That terminology is pretty loaded.  That cash was not put into Apple’s coffers by the shareholders so there’s nothing to “return”.  It was generated by Apple as a result of superb management leading to tremendous profits and cash flow.

I am not in favor of dividends (or worse, as stock buyback).  If you have Apple stock and you want to realize some cash, then sell your stock.  You get the added bonus of paying the lower tax rate on capital gains.

Windsor Smith

?Return? the cash to the shareholders.? That terminology is pretty loaded.? That cash was not put into Apple?s coffers by the shareholders so there?s nothing to ?return?.? It was generated by Apple as a result of superb management leading to tremendous profits and cash flow.

Actually, if the initial shareholders hadn’t risked their money and invested in the company when it needed capital in order to grow, and if subsequent shareholders, like me, weren’t willing to assume the risk from the first ones, then that cash wouldn’t even be there. Besides, we shareholders own the company, so the profit is already ours; we’re just waiting for it to be paid out.

You get the added bonus of paying the lower tax rate on capital gains.

Wrong again. The federal tax on most dividends has been the same as it is for capital gains since 2003, and will continue to be at least through the end of 2012.

Personally, I’d like to enjoy the fruits of my investment without having to give up some of my stake in the company, and a regular dividend is not much to ask, especially when Apple has such a ridiculously large cash hoard. But I realize the issue is controversial and not all stockholders feel the same way.

CapnVan

A dividend could make sense for a number of companies.

However, everything that we’ve been seeing over the past few years indicates that Apple has been leveraging that huge cash stockpile not only to place enormous early orders for flash memory and other components (giving their suppliers guaranteed funding for capital improvements that benefit both supplier and Apple down the line, while also squeezing the remaining non-Apple parts stock for their competitors) but also, by making those huge orders, getting the best possible pricing on their components, making it more and more difficult for their competitors to compete on pricing and profit.

In other words, Apple is using that massive cash pile as a strategic weapon, even without making any strategic acquisitions. Which, in turn, is driving the stock price higher.

Why on Earth would they do anything that would make that big bat that they’re swinging at Google, MSFT, HTC, etc. even an iota less effective?

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