Dividend Talk About Apple
The talk about a dividend for Apple (Nasdaq: AAPL) has heated up more recently, with comments by professionals on Wall Street fueling the speculation. Money manager Howard Ward of Gamco Investors said on a Street Smart interview with Bloomberg television, that he thought Apple would declare a one-time dividend during the first half of 2012. Perennial Apple bull, Piper Jaffray (NYSE: PJC) analyst Gene Munster, was quoted in a CNBC piece as putting a $607 price target on Apple. One of the positives Munster cited in his glowing praise for Apple, was that he also thought the company would issue a one-time dividend.
Apple Five-Year Chart
There has often been speculation about Apple one day paying a dividend. After all, like some of its tech brethren, it sits on a pile of cash. A huge pile. Dividend talk routinely gets going on high tech names after they've amassed large amounts of cash through their growth phases, so the natural question becomes, what will they do with it? The options are usually acquisitions, stock buybacks, or dividends. Some of the other tech companies that have matured-meaning their growth rates have slowed down from their earlier, rapid growth years, pay dividends. Names such as IBM (NYSE: IBM), which has long been considered a mature blue chip, come to mind. But in recent years, former fast growers such as Microsoft (Nasdaq: MSFT) and Intel (Nasdaq: INTC) along with Cisco Systems (Nasdaq: CSCO) now pay regular dividends. What about Apple?
Techs Awash In Cash
Many tech companies have large cash reserves. Cisco has amassed a lot of cash, and still has most of it, even though it now pays a dividend which currently yields 1.3 percent. Cisco has $44 billion of cash and cash equivalents, roughly $47 billion if you add the $3 billion in long term investments. Microsoft carries about $60 billion in cash, equivalents and investments, with about net $50 billion when you subtract its long term debt. Microsoft pays a dividend which now yields more than 3 percent. Intel's dividend yields 3.6 percent, and its cash and investment pile is about $23 billion net. Intel and Microsoft, with their attractive yields, now draw dividend investors the way some blue chip industrials do.
Apple's Cash Pile
Apple has amassed a mountain of cash, cash equivalents and investments. Apple has roughly $10 billion cash, $16 billion in cash equivalents, a staggering $55.6 billion in long term investments, and has zero long term debt. Apple sits on an $81.6 billion pile of cash or relatively liquid near-cash. So what's Apple going to do with all this?
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Apple's not the only non-dividend paying tech name with tons of cash. Google (Nasdaq: GOOG) holds roughly $35 billion to $40 billion in cash and pays no dividend. Amazon (Nasdaq: AMZN), the hybrid tech-retailer, has about $8 billion in cash and equivalents and no debt. There really isn't much call for Google or Amazon to pay a dividend, but Apple's massive reserves have been of interest to investors for awhile. The late Steve Jobs, who ran Apple absolutely his way, was against both paying a dividend and buying stock back. New CEO Tim Cook has been noncommittal, but hasn't ruled it out. Thought on the Street is that at least Cook may consider it.
Should Apple Pay A Dividend?
Investors are divided on this. While it's clear that many Apple customers are nearly evangelical about its products, many investors are passionate about its growth. The history of dividend payers means they usually are moving from their growth phase to a more mature phase, as has been the case with Microsoft and Intel. Nobody expects the kind of serious innovation from them that marked their earlier years. That's not so clear with Apple.
While sales in the US and UK of Apple's iPhone 4S have been robust, that hasn't been the case in Europe. The continent finds Google's Android the smartphone of choice for cash-strapped buyers. That may be an aberration, but it shows Apple's not permanently invulnerable if nothing else. Supposedly value investors and some institutions would additionally buy Apple stock if it paid a dividend, yet the related question is, would growth investors leave in any numbers? Still, Apple keeps growing that ridiculous pile of cash, so either a one-time special dividend or an annual payout equaling 1 percent to 3 percent would still only represent around 15 percent to 35 percent of forward earnings estimates at $35 a share.
Will Apple Pay A Dividend?
The short answer is, probably. Will it change the way Apple is perceived? Maybe. Will it change the way Apple does business? Probably not. Apple just might be able to keep both its growth investors happy and gain new dividend investors, a bullish scenario which might propel the stock to surprising new heights.
Committed to your Global Profits,
Chief Investment Analyst
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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.
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