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Apple: Is It High Time to Declare Dividends?

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With cash reserves of U.S. corporations set to expand in the fourth quarter of 2010, investors may be hoping that companies share some of that wealth.

Market analysts say that cash and cash equivalents held by publicly traded companies at the end of third quarter could have crossed $1.5 trillion, and with earnings reports coming up, they expect many firms to announce dividends or buybacks. (U.S. earnings season officially starts Oct. 7, when Alcoa will report its quarterly numbers.) 

Investors may be hoping for Apple (Nasdaq: AAPL  ) to boost shareholder returns by declaring a dividend -- with the company's cash position swelling, it could be high time for Apple to declare a dividend or repurchase its common shares.

Apple, which currently has a cash war chest of nearly $46 billion, stopped paying dividends in 1995, and in the latest Apple shareholder meeting CEO Steve Jobs said he wants to preserve cash for possible acquisitions and other investments.

Last month, software major Microsoft hiked its dividend by 23%, its first dividend hike in two years, and Cisco said it plans to issue the company's first dividend this fiscal year.

Jefferies analyst Peter Misek said a major opportunity for investors is Apple's growing cash hoard, which he estimates at almost $50 billion this quarter and sees a dividend or repurchase program.

"A 3% dividend is a possibility and well within Apple's earnings yield. As far as repurchase, Apple could undergo a repurchase of well more than 15% of the shares outstanding while maintaining significant flexibility," Misek said in a note to clients.

Misek, who initiated coverage of Apple with a "buy" rating and a $365 price target, also expected Apple to report fourth-quarter results better than Street estimates on strong shipments of iPhones and iPads.

Apple is expected to report its fourth-quarter results on Oct. 18. Wall Street expects the gadget maker to earn $3.99 a share on revenue of $18.61 billion. Jefferies expects earnings of $4.35 a share on revenue of $19.84 billion.

Apart from strong quarterly results, Misek said other upcoming catalysts for the stock include launch of the Verizon iPhone and a new or revised iPad, with the possibility of a seven-inch version.

"With huge addressable markets and relatively low penetration we continue to see plenty of runaway for Apple," Misek said. "We see 50%-type growth rates continuing for at least the next year with EPS growth of over 40%."

International Business Times, The Global Business News Leader

This article has been lightly edited. Microsoft is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor selection. The Fool has written calls (Bull Call Spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (11) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 05, 2010, at 11:03 AM, Henry3Dogg wrote:

    If you want dividends, then buy a stock that pays dividends. There are plenty out there.

    Please assume that the current owners of Apple stock chose it on the basis of it being what it is i.e. A growth stock, and have planned their tax positions accordingly.

  • Report this Comment On October 05, 2010, at 11:08 AM, applebull wrote:

    I resent your calling Apple a gadget maker. You don't call Google a click merchant. The backbone of Apple is the Macintosh Computer, and ITunes. They provide the integrated and synchronized experience that makes everything else go. Apple is also a very large software manufacturer. How about calling them a widely diversified Hi-Tech Company!

  • Report this Comment On October 05, 2010, at 11:21 AM, gslusher wrote:

    Could someone more knowledgeable than I please explain how dividends and especially stock buy backs help the company? I doubt that Apple's management, including Steve Jobs, runs the company primarily for the benefit of the stockholders. They run Apple for the benefit of Apple, Apple's employees, Apple's customers, and Apple's suppliers. We stockholders are along for the ride--and quite a ride it has been since August, 2007, when I bought my first little piece of Apple at $132.90. Since then, as of yesterday (when the price was down), I've made over 33% annual return (not compounded) on AAPL, based on my average purchase price. I've more than doubled my money. A 3% dividend would have been inconsequential in that context.

    Sometimes, I think, investors get a bit arrogant and self-centered, thinking that the whole world is about them and their investments. A clue, guys and gals: it's not.

    In his interview at the D8 conference, Jobs made a point about how Apple evaluates its own performance: it's the customer. People (not enterprises) vote with their wallets. As Jobs said,if they like what Apple makes, they'll buy it. If they don't, they won't. It's as simple as that. The same can be said about AAPL, the stock: if you like the way it can make money for you, buy it; if you don't, don't buy it. If you want dividends, buy Microsoft, though the total return from dividends, growth, buy backs, etc, for MSFT probably hasn't been anywhere near that for AAPL.

  • Report this Comment On October 05, 2010, at 11:32 AM, dstb wrote:

    Yes Apple is a growth stock but the cash hoard here and at a growing list of tech companies is absurd. They don't need all that cash and they never will. I own Apple and its stock has been remarkable but why can't it be even better? If Apple paid a 3%+ dividend the stock would attract income investors pushing it to a higher valuation. Investors are starved for yield right now. Very few growth stock investors would sell because guess what? Apple is still going to grow either way. I would still take a dividend of less than 3% but I doubt it would help much in the valuation area.

    Still long AAPL and hoping for some sanity

  • Report this Comment On October 05, 2010, at 12:09 PM, ByrneShill wrote:

    " I doubt that Apple's management, including Steve Jobs, runs the company primarily for the benefit of the stockholders. "

    If you're not kidding, then I hope you'll sell your shares right away. For Pete's sake, management are the shareholders employees, hired to managed the shareholder's assets. If you don't believe they're woking for you, either fire them or sell your shares.

    That's just nut!

  • Report this Comment On October 05, 2010, at 12:55 PM, Gonzhouse wrote:

    Isn't it obvious that Jobs views the $46B as His, not yours (other shareholders)? I'm not saying that's right; just saying that if you own Apple, that's the expectation. Jobs couldn't give a **** about other shareholders.

  • Report this Comment On October 05, 2010, at 1:36 PM, TMFTomGardner wrote:

    I'd rather have Apple hire investment teams to manage that money for them -- rather than paying it out w/ the double tax.

    Further, like one of the commenters above, I've never felt that the cash on the balance sheet was "the shareholder's money." I think it is money for the entire constituent base of the business (shareholders, customers, employees, the world).

    It is up to the leadership team to determine what is the best way to allocate that cash in order to reward all constituents forever.

    Apple is very competitive challenged. They weren't seriously viable as a business 12 years ago. Now they're on the verge of being the largest company in the world. That's GREAT news for Applicious fans. But it also shows how easy it is to get reversed.

    If Microsoft had dumped massive amounts of its cash back to shareholders in special dividends, they might be in a somewhat painful position today.

    Management and the Board are not responsible for doling out cash to benefit shareholders with likely a short-term perspective. They have to position this company to be greater still for the next few quarter centuries.

    I hope they choose to invest it.

  • Report this Comment On October 05, 2010, at 2:48 PM, Henry3Dogg wrote:

    I think you have to suspect the motives of the writer of this article. If he is a Motorola or Samsung or HP. Investor, then clearly he would benefit from seeing Apple reduced to a lower growth rate.

  • Report this Comment On October 05, 2010, at 2:52 PM, Emperor2 wrote:

    Darn nice of you to tell a billionaire how to spend his money. I'm sure he appreciates your intelligent appraisal of his companies situation and will immediately do exactly what you want him to do. You are so smart I'm sure he will follow your sage advice. I'm sure he became a billionaire listening to wise people such as yourself. Steve Jobs is just not capable of running his company without your advise.

  • Report this Comment On October 05, 2010, at 3:18 PM, exeter17 wrote:

    Don't be daft. People buy into the cult of Apple because Steve Jobs says so. Steve Jobs would say "why do I want Apple to pay dividends when I don't have to?"

  • Report this Comment On December 11, 2010, at 3:05 PM, maxprog wrote:

    The capital funded growth argument may be true for companies that grow mostly through acquisitions. AAPL on the other hand has been able to show strong organic growth without any major acquisition. Their R&D budget too is really frugal at least by silicon valley standard. So there is really no good reason for the cash hoard except Steve likes it that way. <a href="">disability payday loans</a>

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