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
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.
"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%."
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.