Apple Should Return Some Cash to Shareholders, Bernstein's Sacconaghi Says

Apple Inc. should return some of its $45.8 billion in cash to investors in the form of dividends or share repurchases, Sanford C. Bernstein & Co. said.

“Apple has done an extraordinary job in creating value for its shareholders over the last five years,” Toni Sacconaghi, an analyst at Sanford C. Bernstein in New York, wrote in a report today. “However, one common and growing source of investor frustration has been the company’s unwillingness to return any part of its burgeoning $46 billion cash balance.”

Apple’s net cash at the end of its fiscal third quarter was the highest among all U.S. listed companies, the report said. Apple, maker of Macintosh computers, iPhones and iPads, needs less than $10 billion to run the business, Sacconaghi said.

Shares of Cupertino, California-based Apple have gained more than fivefold over the past five years, compared with a negative 2.5 percent total return for the Standard & Poor’s 500 Index. It is the second-best performing stock in the index after Priceline.com Inc. The shares increased 0.8 percent to $252.16 at 12:38 p.m New York time today.

“We have maintained our cash and strong balance sheet to preserve the flexibility to make strategic investments and, or acquisitions,” said Apple spokesman Steve Dowling.

Sacconaghi recommended Apple immediately commit $30 billion to buying back shares and set a 4 percent annual dividend. Implementing both would leave the company with $25 billion to $30 billion in cash at the end of fiscal 2011, the report said.

‘More Transparent’

“Most importantly, we believe Apple ought to engage in an ongoing dialogue with its shareholders about its cash balance and be more transparent about its expected cash usage,” Sacconaghi wrote.

Steve Jobs, Apple’s chief executive officer, in February said he prefers holding on to cash for potential acquisitions and “bold” investments, rather than paying dividends or buying back stock.

Sacconaghi said returning cash to shareholders “would mitigate investor fear of a potentially large, value destroying acquisition and create financial discipline,” resulting in a higher price for the shares.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net

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