Apple preparing to offer “Significant” dividend early next year?

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    Posted: 19 December 2011 11:15 PM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

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    Posted: 19 December 2011 11:43 PM #1

    I do wonder what “Significant” could be.

    Even if it would be just paid out of Apple’s US free cashflow (to avoid the double taxation from repatriating the overseas cash), AAPL could easily offer $20 billion in annual dividends in the 2012 financial year while still growing its cash reserves beyond $100 billion.

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    Posted: 19 December 2011 11:49 PM #2

    Que up the dividend hate posts…..............  “the end of Apple as a growth company”.  sigh

    The original article postulates 3% which while only a ‘drop in the bucket’ would still draw in new blood to this tired pig.

      cheers to the longs
          JohnG

         
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    Posted: 20 December 2011 12:46 AM #3

    WS will not be able to have it both ways.  Never mind that these are still just rumors at the moment, WS has clamored for “better use of cash” for eons now and if Apple gives it to them in some form, charges of hypocrisy will be difficult to avoid if elements of WS suddenly slap a “Mature Company Walking?” label on the World’s Largest Startup? which already has a P/E valuation lower than a certain dividend-issuing Mature Company Walking? by the name of IBM.

    Apple is already able to issue a 3% dividend with no ill effects to its operations or even major strategic acquisitions, given the size of its cash pile (not to mention its insane rate of cash generation).  I’m of neutral sentiment if there’s a small dividend within the next 12-24 months.

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  • Posted: 20 December 2011 12:54 AM #4

    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    AAPL isn’t currently valued as a growth stock with its lowly P/E, so I see more upside from additional buyers of a dividend paying stock.

         
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    Posted: 20 December 2011 01:02 AM #5

    Mercel - 20 December 2011 04:54 AM
    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    AAPL isn’t currently valued as a growth stock with its lowly P/E, so I see more upside from additional buyers of a dividend paying stock.

    I agree.  QCOM pays a dividend and is a dynamic growing company. Paying a dividend is not, per se, a sign of stagnation in the business model. SBUX pays a dividend, etc.

    The cash horde will soon be 100 billion bucks. It is not being used to its fullest extent, interest rates are low so it produces little income and ‘just buying something’ is out of the question. So pay a small quarterly dividend out of free cash flow and open the now-barred gate to many foundations, Trusts, endowments that have restrictions on owning non-income producing equities. Believe me, those managers don’t want to own INTC Or MSFT instead of AAPL.

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  • Posted: 20 December 2011 02:12 AM #6

    johnG - 20 December 2011 03:49 AM

    Que up the dividend hate posts…..............  “the end of Apple as a growth company”.  sigh

    The original article postulates 3% which while only a ‘drop in the bucket’ would still draw in new blood to this tired pig.

      cheers to the longs
          JohnG

    If my theory that AAPL’s low ISM is a result of AAPL growing faster than investor liquidity, then a dividend (bringing dividend focused funds) would be a good thing.

    As for how much Apple could afford, with its current cash position, Apple could easily pay out each quarter’s cash flow without hurting Apple at all.

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    Posted: 20 December 2011 02:13 AM #7

    Does Apple have an incentive to maintain a slower share price appreciation?

    If shares go up steadily 10-20% per year, then options grants to employees will certainly appreciate. But if shares go up more but with wider percentage swings in price, then won’t more option grants become worthless in the down swings? Dividends, buybacks, or splits to stimulate the stock price are techniques Apple can deploy as needed to make sure employees are rewarded. If the share price goes up too much too fast, it seems to me that Apple risks losing a nice carrot for future employee options.

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    Posted: 20 December 2011 06:54 AM #8

    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    Negatives? How about double taxation? http://en.wikipedia.org/wiki/Dividend_tax

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  • Posted: 20 December 2011 08:38 AM #9

    Red Shirted Ensign - 20 December 2011 05:02 AM
    Mercel - 20 December 2011 04:54 AM
    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    AAPL isn’t currently valued as a growth stock with its lowly P/E, so I see more upside from additional buyers of a dividend paying stock.

    I agree.  QCOM pays a dividend and is a dynamic growing company. Paying a dividend is not, per se, a sign of stagnation in the business model. SBUX pays a dividend, etc.

    The cash horde will soon be 100 billion bucks. It is not being used to its fullest extent, interest rates are low so it produces little income and ‘just buying something’ is out of the question. So pay a small quarterly dividend out of free cash flow and open the now-barred gate to many foundations, Trusts, endowments that have restrictions on owning non-income producing equities. Believe me, those managers don’t want to own INTC Or MSFT instead of AAPL.

    Why should Apple do something just so that foundations, trusts, and other value investors can own Apple stock? Luckily, management doesn’t think like that.

    In addition, when a stock issues dividends, growth funds very often have to sell the stock…

    What makes you think the cash is not being used to its fullest extent?

         
  • Posted: 20 December 2011 09:11 AM #10

    Anyone have a sense of what this would do to holders of LEAPS through the dividend initiation? 

    My understanding is that call options are discounted going into the ex-dividend date on the assumption the stock will fall by the dividend amount, but have no idea how it would work with initiating a dividend on a company that didn’t have one before.  Seems like it might be a hit to option holders that bought before a new dividend announcement as they didn’t have the discount, but have to deal with the share price drop.

         
  • Posted: 20 December 2011 09:35 AM #11

    A dividend would be just what the doctor ordered for Apple stock.

    We’re a growth stock right now that’s not even being priced accordingly.  So why not do something different?  It’s not working as is.

    By adding a dividend, AAPL would at least have to have a higher multiple than IBM (faster growth, higher dividend yield).  I would argue we could see 15-17 PE easy.

    Sure, we may lose a couple “pure growth” investors, but the number of value funds far outweigh growth funds anyway.

         
  • Posted: 20 December 2011 09:36 AM #12

    If they do pay the dividend then the P/E compression will stop. APPL will have a P/E growth of at least 1-2 points which will be $30-60 on the stock price because it will allow a whole new class of institutional buyers (value AND dividend funds) to purchase the stock which will MORE than make up any option loss due to dividends now being paid.

         
  • Posted: 20 December 2011 10:32 AM #13

    asymco - 20 December 2011 10:54 AM
    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    Negatives? How about double taxation? http://en.wikipedia.org/wiki/Dividend_tax

    Thank you.  I was holding my tongue.

         
  • Posted: 20 December 2011 10:42 AM #14

    capablanca - 20 December 2011 02:32 PM
    asymco - 20 December 2011 10:54 AM
    iOSWeekly - 20 December 2011 03:15 AM

    http://www.macrumors.com/2011/12/19/apple-preparing-to-offer-significant-dividend-for-investors-early-next-year/

    I hope so - would bring in some more institutional buyers from dividend focused funds etc.

    Anyone see any negatives? (apart from the standard “Dividends signal a end-of-growth signal for a company that starts one” bleating that accompanies any dividend talk).

    Negatives? How about double taxation? http://en.wikipedia.org/wiki/Dividend_tax

    Thank you.  I was holding my tongue.

    It would be a qualified dividend that’s currently eligible for 15% capital gains.  The rates will no doubt rise in 2013.

         
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    Posted: 20 December 2011 11:57 AM #15

    Double taxation is quite the negative.  But no one in WS ever lets those kinds of inconvenient details get in the way of the clarion call to Use Apple’s Cash Pile?.

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.