Paying a dividend makes sense for Apple, according to Sterne Agee analyst Shaw Wu. In a research note to clients obtained by The Mac Observer, Mr. Wu argued that a yield between two percent and three percent would be attractive to investors and not threaten Apple’s still growing cash hoard that was worth US$97.6 billion at the of the last quarter.
Mr. Wu believes that Apple will generate another $75-$80 billion in cash during calendar 2012, almost twice what the company generated in 2011.
The analyst said that with Apple’s annual shareholder meeting taking place on February 23rd, there is likely to be renewed pressure from shareholders on the company to begin some sort of dividend program. Investors, analysts, and hedge fund managers alike have been calling on Apple to pay a dividend since the company’s cash hoard first hit the $30 billion mark more than two years ago.
Starting in December, however, predictions of a “significant” Apple dividend began coming from several quarters, including Howard Ward, a money manager from Gamco.
One of the arguments made by Sterne Agee’s Shaw Wu on Friday is that if Apple pays a dividend, it will open up the stock to a new class of investors. More specifically, there are many funds both large and small that only invest in stocks that pay a dividend, and Mr. Wu said, “We believe this should help further stabilize its shareholder base.”
This is actually an important issue. Apple’s stock has become so valuable and grown so fast that some funds with large holdings in the company can’t invest any more money in the company according to their own rules. Some have argued that this has kept an artificial lid on the stock’s value, though that hasn’t stopped AAPL from growing more than 20% since the beginning of 2012.
Whatever the case, Mr. Wu is undoubtedly correct that shareholder pressure on the company to pay some of its vast cash holdings back to investors is going to be intense this year. Apple simply has more money than it could reasonably spend given the company’s track record of small acquisitions and that cash hoard is still growing.
It has reached a point where Apple can pay a dividend and still keep more money than dozens of countries produce in annual GDP. That’s money the company can continue to use to manage its supply chain, build new stores, construct destination company headquarters, and occasionally buy companies worth a few hundred million dollars, all several times over and then again.
Mr. Wu Maintained his “Buy” rating on AAPL, as well as his $550 price target on the stock. The stock traded higher throughout most of Friday, but gave back those gains as the afternoon session wound down to $493.14, down $0.030 (-0.01%), on heavy volume.
*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.