The Time Is Right for an Apple Dividend

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Everyone knows that Apple (Nasdaq: AAPL  ) is sitting on an obscene pile of cash. The world's largest business by market value (in neck-to-neck competition with oil giant Exxon Mobil (NYSE: XOM  ) ) is also one of the richest, presiding over some $76 billion in cash and investments and making $10.3 billion more in the last quarter alone.

There's also no shortage on pundits telling Apple what to do with all that cash, ranging from dividends and buybacks to large acquisitions. But Morgan Stanley analyst Katy Huberty goes one step further than simple suggestions and says that Apple now is "more likely than ever" to put those greenbacks to work.

According to Huberty's projections, Apple would wield a $136 billion bank account by the end of 2012 unless newly anointed CEO Tim Cook does something with it. Apple lacks a track record of absorbing large acquisitions. Therefore, direct buybacks and dividends look more likely to help investors out in the long run.

So Huberty suggests starting a low-key 2.4% dividend yield, which would amount to about $8.4 billion a year at today's share prices. That would still leave plenty of cash flows available for buyouts, buybacks, or saving for a biblical flood of a rainy day.

She also notes that Apple willingly pays some taxes on foreign earnings, in stark contrast to fellow cash-rich tech giant Cisco Systems (Nasdaq: CSCO  ) and many others. That removes or at least reduces one large obstacle to investor-friendly payouts.

I totally understand that Apple wants to keep some dry powder on hand just in case a large challenge or some enormous challenge turns up. But there are limits to reasonable caution -- $136 billion would be almost enough to buy Oracle (Nasdaq: ORCL  ) outright before incorporating any kind of buyout premium.

A 2.4% yield might not sound like much, and it's slightly less than the least-generous payouts on our Income Investor scorecard: Coca-Cola (NYSE: KO  ) offers a 2.6% yield while McCormick (NYSE: MKC  ) just squeaks by Huberty's suggested Apple dividend with a 2.5% yield. These modest payouts have helped both stocks outperform the DJIA (INDEX: ^DJI) by very comfortable margins over the past 10 years.

Would it be too much to ask Apple to do its shareholders the same market-crushing favor? Share your thoughts in the comments section below.

Fool contributor Anders Bylundholds no position in any of the companies discussed here. No, not even Apple.The Motley Fool owns shares of Oracle, Apple, Cisco Systems, and Coca-Cola and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems, McCormick, Apple, and Coca-Cola, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.

Read/Post Comments (16) | Recommend This Article (10)

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 September 13, 2011, at 9:13 PM, Bert31 wrote:

    I personally do not want to see Apple pay a dividend. I would rather see them finance their own growth, invest in R&D, and continue to innovate . Besides, BRK has never paid a dividend, has it?

  • Report this Comment On September 13, 2011, at 9:22 PM, larryg45 wrote:

    If it isn't broke, why try to fix it?

  • Report this Comment On September 13, 2011, at 9:43 PM, stallings01 wrote:

    If, as this columnist suggests, it would drive the price of APPL up, and not cause harm to the company's ability to innovate and bring great products to market, then why not pay a dividend?

  • Report this Comment On September 13, 2011, at 10:25 PM, herbwb wrote:

    I would rather see AAPL buy DIS.. and soon!

  • Report this Comment On September 13, 2011, at 10:35 PM, 0xF00L wrote:

    Apple should short gold to add more money to it's pile. And buy the rights to all silicon atoms on the planet. - For some reason I am pretty happy with my returns in apple, even without a dividend.

  • Report this Comment On September 13, 2011, at 11:00 PM, TMFBoiseKen wrote:

    I think a divided (remeber, they are loading up about $10billion / quarter) would be the best thing apple could do to get its share price moving. If they were a company that in Sept 2012 had over $100 Billion on the balance sheet and paid a nice $9-10/share dividend, I bet we would see the market cap north of $1/2 Trillion. Without the little dividend booster, I think big money mutual funds will stay on the sideline.

    Without a dividend, Tim Cook might get tempted to make a major splash with an aquisition. That would be an awful waste of all of that cash. Please Tim -- make your first Apple CEO act be one of Sharehold Friendly Wisdom -- show us OUR money.

  • Report this Comment On September 13, 2011, at 11:05 PM, Uruzone wrote:

    I think a buyback is more likely (and more useful) than a dividend. A dividend is a slippery beast. Once it's started, it's expected to increase from time to time. If it's suspended or decreased, it KILLS a stock. Consequently, it paints a company into a difficult corner. Apple's been down that road before. I don't see them doing it again.

    A buyback, though, is a great way to add value immediately to the current stock. It's a wise use of cash in that it has a positive effect on the balance sheet and it shows confidence in a strong future. Also, it can be done almost entirely on Apple's terms: they don't have to do it every quarter, they don't have to make any long term commitment once it's done.

    My two cents.

  • Report this Comment On September 14, 2011, at 12:25 AM, makelvin wrote:

    Looks like these analysts are trying to pressure Apple's new CEO Tim Cook to either give dividend or a stock buy back. As long as Apple is having a tremendous growth in their revenue, there is no reason why they need to provide dividend or do any stock buy back. If some people who will only be interested in buying stocks that provide dividends, then these people should simply buy some other stocks and stay out of Apple.

    As far as I am concern, Kate Huberty is never even a credible analyst. This same own issue has been debated to death already; but while Steve Jobs was CEO, nobody really want to give him too much problem. Now Steve Jobs stepped down, these bonehead analysts are trying to test the new guy to see if he will be a push over. I would be disappointed if he does.

  • Report this Comment On September 14, 2011, at 2:59 AM, Etonian8 wrote:

    I totally agree with makelvin.

    I am happy without a dividend as long as there is growth in AAPL and it continues to generate gains in the stock price. We don't need the analyst (apologies to the Fool team) to tell us how they want to satisfy their clients and pumping up short term returns on their funds.

  • Report this Comment On September 14, 2011, at 4:00 AM, ccist wrote:

    A split can make shareholders happier!

  • Report this Comment On September 14, 2011, at 5:50 AM, H3D wrote:

    Anders Bylund is no friend of Apple. He regularly goes out of his way to run them down with rumours that turn out to be false and totally distorted comparisons. He's in practice to become Scott Moritz II.

    So why would anyone care about his views on Apple dividends.

    If Apple announce a dividend, he would be second in line to denounce Tim Cook for having lost the plot!

    For the foreseeable future I am happy for Apple to not pay a dividend if they believe that to be the best strategy.

    Unlike Anders, I am long AAPL

  • Report this Comment On September 14, 2011, at 8:56 AM, tjg927 wrote:

    Think different!

    Build a multi billion dollar fab right here in the US. Promise to make all iphones here with US labor. It would generate such good will people would be willing to pay even more and would flock to the iphone.

  • Report this Comment On September 14, 2011, at 6:25 PM, sunvalleyfool wrote:

    tig927 has the best idea of the year. If this country allows the technology manufacturing industry to go fallow, we all shall suffer. The government has its head in the sand, and Apple has an opportunity to get it right.

  • Report this Comment On September 14, 2011, at 11:24 PM, Fool wrote:

    Great thinking tjg, and I personally love the idea. But remember that sourcing of all the Apple gadget components from Asia was always Tim Cook's baby. I'd be shocked if he moved anything to the US.

  • Report this Comment On September 15, 2011, at 11:02 AM, McRCN wrote:

    Apple paying a dividend is a wall street pipe dream. You would be better off praying for a stock split.

  • Report this Comment On September 15, 2011, at 12:26 PM, plange01 wrote:

    a dividend never helped msft which has been dead money for over ten years!

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