Apple Investors Await a Dividend Gusher

Apple Inc. (AAPL) has Wall Street’s full attention after hinting at plans for the company’s $100 billion cash pile that may lead to stockholders receiving a dividend.

Apple is “actively discussing” uses for its cash, including a dividend, buyback, acquisitions and supply-chain investments, Chief Financial Officer Peter Oppenheimer told analysts and investors Jan. 24 in an earnings conference call.

The comments were a welcome sign for investors who have called for a dividend as Cupertino, California-based Apple has added to its balance sheet. Apple’s $97.6 billion in cash and investments is larger than the market value of all but 26 companies in the Standard & Poor’s 500 index. The total could reach $150 billion by year-end if the company doesn’t give money back to shareholders, said David Rolfe, chief investment officer of Wedgewood Partners Inc.

“They have turned into the First National Bank of Cupertino,” said Rolfe, whose firm manages $1.3 billion in assets, including Apple shares. “Common sense dictates that they don’t need a cash hoard of $150 billion.”

Apple reported fiscal first-quarter profit this week that more than doubled to a record $13.1 billion, boosted by holiday purchases of the iPhone and iPad tablet. Sales jumped 73 percent to $46.3 billion. Gross margin, the percentage of sales remaining after deducting the cost of production, rose to 44.7 percent, from 38.5 percent a year earlier, the company said.

Shares Surge

A dividend is a recurring payment made by companies to its shareholders, typically as a percentage of profit given each quarter. For Apple, a dividend of 3 percent could propel the stock as high as $550 a share, said Rolfe, who expects Apple to announce such a move later this year.

Apple rose 6.2 percent to $446.66 at the close of trading yesterday. The stock is up 31 percent in the past 12 months.

A policy change would attract a new class of investors who only buy shares of companies that offer dividends, said Brian White, an analyst at Ticonderoga Securities LLC.

“It’s going to be a gusher when they tap into that thing,” White said. “It’s like tapping into an oil field out in Texas.”

Analysts at Canaccord Genuity Corp., Jefferies & Co. and Morgan Stanley also expect Apple to announce a dividend or buyback.

Showing Confidence

Even so, not all analysts say a dividend is a good idea. Apple’s refusal to return the money to shareholders -- even a one-time payment that wouldn’t recur each quarter -- speaks to the confidence of a company that intends to chase giant growth opportunities, said Trip Chowdhry, an analyst at Redwood City, California-based Global Equities Research.

“If Apple declares a dividend, it would be an indication to me that it’s time to get out of the stock,” Chowdhry said.

Oppenheimer, Apple’s finance chief, didn’t say if, or when, Apple would disclose a decision about use for its cash.

“We’re examining all uses of our cash balance -- what we might do in the supply chain, what we can do from an acquisition perspective, and otherwise,” said Oppenheimer. “In the meantime, we’re not letting it burn a hole in our pockets.”

Apple Chief Executive Officer Tim Cook said last year that he wasn’t “religious” about holding on to Apple’s cash. That signaled a change from co-founder Steve Jobs, who had been more resistant to shareholder calls for a dividend or buyback.

Ticonderoga’s White said it would be a surprise if Apple made a large acquisition, something it typically doesn’t do.

On the call, Oppenheimer described Apple’s approach to making acquisitions.

“We have done acquisitions where they tended to be smaller or medium-sized companies that have just great engineering and other talent, a great start on a product or a technology that we’d like to bring into Apple,” he said. “We tend to do several a year. We’re very, very disciplined in how we think about this and how we do it, and I think our track record here has been very strong.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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