Will Apple raise its dividend next week?

An analyst thinks the company could return an additional $20 billion or more to shareholders as it seeks to bolster its flagging stock price.

By TheStreet Staff Apr 15, 2013 5:11PM

thestreet logoApple's iPhoneBy Chris Ciaccia, TheStreet

 

Speculation as to what Apple (AAPL) will do with its $137 billion cash hoard mounts ahead of the release of the Cupertino, Calif., company's first-quarter financial results, on April 23. One analyst thinks Apple could allocate as much as an additional $20 billion for shareholder dividends and stock buybacks.

 

UBS analyst Steven Milunovich believes Apple could boost its cash return to shareholders to $65 billion over the next three years, up from the $45 billion already budgeted for dividends and buybacks.


Raising its dividend and accelerating share buybacks would alleviate some of the pressure Apple is facing from shareholders such as David Einhorn, and would have the added benefit of whetting investor appetite for the stock.


"The market appears to be underestimating the potential dividend increase, and a significant return of cash could boost the stock price by 10%," Milunovich wrote in a note to investors. The analyst rates the stock a "buy" and has a $560 price target.

 

Apple CEO Tim Cook has let it be known that the technology giant is in "very, very active" discussions about the cash on its balance sheet. In March 2012, Apple announced a combination of dividends and buybacks worth $45 billion, to be paid out over three years.


Profits harder to come by 

Apple faces slower earnings growth as the smartphone market matures and competition from SamsungGoogle (GOOG) and others intensifies. Last quarter, the iPhone accounted for $30.7 billion in revenue, or 56% of Apple's $54.5 billion in sales, as the company sold 47.8 million of the smartphones.

 

Analysts polled by Thomson Reuters are looking for Apple's second-quarter earnings to be down sharply from a year ago, when Apple earned $12.30 per share on $39.19 billion in sales. 

Some on Wall Street are speculating that an announcement of shareholder-friendly measures could accompany the April 23 earnings report as a way to cushion any damage to the stock should the company miss profit expectations.

 

Any increase in buybacks could help offset the slowing year-over-year earnings growth Apple is expected to see, as the company waits for new products, such as the oft-rumored iPhone 5S, to help spur earnings. "An additional $10 billion in share repurchases or $20 billion total over three years would be 5% accretive to our estimates, and a $2 billion to $5 billion dividend increase would lift the stock's yield from 2.5% to 3%," Milunovich wrote in his note.


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