Apple is going to initiate a shareholder dividend in the second half of 2012, according to Jeffries & Co. analyst Peter Misek. In an interview with Bloomberg TV (embedded below), Mr. Misek said that Apple’s cash hoard will top $120 billion by the end of the September quarter, and characterized that amount as “an obscene amount of money” that would lead to political pressure increasing on the company to pay a dividend.
Mr. Misek argued that Apple has three main uses to which it can and will put its cash hoard to use. He said that Apple would continue to be “very aggressive” in capital spending, which includes expanding its retail presence, buying factory equipment (which Apple does with some of its OEM partners), and expanding its data center capabilities.
He also said that Apple would continue to use its wealth to better manage its supply chain. Apple has become a price leader with the iPad and MacBook Air, and it maintains enormously high profit margins with its iPhone by securing the most favorable prices in the industry using its vast supply of money.
The third use the analyst sees for Apple’s cash is paying a dividend. Apple has heretofore not paid a dividend, and until recently, the argument put forth by executives such as the late Steve Jobs, CFO Peter Oppenheimer, and newly ordained CEO Tim Cook back when he was still COO Tim Cook, is that dividends are for companies that aren’t growing.
Those execs also used to frequently say that they wanted to keep their powder dry, but we haven’t heard that argument in some time. At the same time, Apple now has so much money it could do anything it wanted at any time to or with anyone. There is no validity to the idea that it needs all its money as a contingency for something unexpected, which could be why those execs haven’t used that expression for some time.
More recently, and perhaps more importantly, Tim Cook said as CEO that he had no religion on what to do with his company’s cash, a comment that might have signaled a change in Apple’s position on a dividend.
Peter Misek believes that this is precisely what will happen later this year, and said that the company could pay as much as $20 per share as a dividend in 2012.At $18 billion and change, Apple could fund such a dividend out of its ongoing cash flow without touching the $97.6 billion it already has in its coffers.
The key part of the interview came when Mr. Misek was asked what it would take to make Apple change its mind on the dividend issue.
“The big thing is that they’re just not going to be able to keep this pile growing,” Mr. Misek said. “By the end of this fiscal year, they’ll have $120 billion in cash on the balance sheet. Even though 70 percent will be international, that’s an obscene amount of money. Frankly, at some point [that much money] becomes a noose around your neck and you become a political target.”
He said that for Apple to continue to be what he called “authority-blessed,” that it would have to take some of its money and pay it out to shareholders. “The cash pile is going to get too big and they become a target,” he said.
Other topics included in the video (see below) include AAPL’s march to the $500 mark, CEO Tim Cook’s leadership, the company’s battle with Proview Technology over the iPad trademark in China, and the ongoing story about working conditions in the suppliers who make Apple’s products.
Bloomberg TV Segment on Apple
*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.