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
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.