The latest surge in Apple shares that’s pushed them above $500 is not because of speculation about its next revolutionary product, but rather the possibility that the preeminent technology growth stock will declare a dividend, or even split its shares, analysts and traders said.
AniPad3 with a higher resolution screen and other technical upgrades from its predecessor is expected to be released in early March. But most buyers are focusing in on the company’s Feb. 23 shareholder meeting in Cupertino, California. They’ve pushed the stock up nearly 19 percent in 1 month.
“We believe the topic around uses of cash including paying a dividend will likely be discussed” at the meeting, wrote Shaw Wu, a Sterne Agee analyst with a $550 price target on the shares, in a note last week. “We believe a yield in the 2 percent to 3 percent range would be very attractive for shareholders, including employees.”
A dividend yieldof 2.5 percent would equate to an annual dividend of $12.50 a share, or $11.65 billion. Many investors feel that is nothing for a company with an unprecedented $98 billion cash hoard. Plus, its estimated by Wu that Apple generated $45 billion in cash over just the last four quarters.
The fervor surrounding a possible payoutcan really be traced back to an interaction on the company’s last earnings conference call at the end of January between CEO Tim Cook, CFO Peter Oppenheimer and Sanford Bernstein analyst Toni Sacconaghi:
Sacconaghi: Peter, Tim, I'd like to follow up on your comment that you're actively discussing, uses of cash. Is that any different, quite frankly, than what you've been doing historically? Or is that statement meant to suggest that you're thinking more constructively about cash than you have historically?
Oppenheimer: Tony, it's Peter. We have always discussed, internally as a management team and with our board, our cash. We recognize that the cash is growing for all the right reasons and I would characterize our discussions today as active about what makes the most sense to do with the cash balance, but we don't have anything to announce specifically today.
The stock was up just 4 percent on the year before that interaction. Of course, blowout iPhone and iPad demand reported on that same call didn’t hurt the rally either. Still, traders see the speculation about a dividend as the main reason for the print above $500 on Monday.
“Apple will pay a dividend for sure,” said Michael Murphy, founder of Rosecliff Capital. “They may or may not split the stock.”
A dividend, a special dividend or a stock split are all financial developments that former CEO Steve Jobs was not exactly fond of, preferring instead to focus on technological developments and keep cash as a cushion.
“Steve Jobs was famously paranoid about cash, having survived the experience of Apple nearly running out of money in 1997, when he returned to the company,” wrote Adam Lashinsky, author of the recent best-seller “Inside Apple,” in a column forFortune last week.
Lashinsky stated in the article that the new CEO realizes the company is in a much different situation now and that a dividend would come “sooner rather than later.” The article has helped fuel the rally, many said.
If a dividend announcement doesn’t come during the shareholders meeting later this month, the next likely time would be during a meeting of the board in March. After all, the board of directors, which includes Disney CEO Bob Iger and Former Vice President Al Gore, would need to approve any declaration of a dividend.
To be sure, some traders believe investors buying now may be caught holding the bag when Apple continues to just kick the cash question down the road. The company may want to avoid the “value stock” label that comes with paying a dividend after seeing the futility it caused in the shares of Microsoft when that tech giant declared a payout for the first time.
“The one big impediment to the dividend is that by all accounts Jobs was fairly opposed to doing it, and I can't imagine that in the company's first shareholders meeting that they will do an about face on their founder’s longstanding policy,” said Dan Nathan, editor of the web site RiskReversal.com. “This is not normal action and reminds me of the move Cisco made from Fall 1999 to March 2000, when the stock briefly became the largest market cap company in the world.”
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