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Apple Likely to Declare 2.5% Annual Dividend on Monday Call: Analysts, Investors

Sunday, 18 Mar 2012 | 10:51 PM ET

It seems investors will finally get the answer to one of the biggest questions that had been the talk of Wall Street this year: What is Apple going to do with all that cash?

Apple
Bertrand Langlois | AFP | Getty Images
Apple

The company, in an announcement released Sunday evening, said that it will be holding a conference call Monday at 9 am EDT to “announce the outcome of the company’s discussions concerning its cash balance.”

The iPhone and iPad-maker is likely to spend about $14 billion of its $98 billion cash hoard – a record for a public company – to get it a healthy and modest dividend yield in the 2.5 percent area, according to a number of analysts and investors. At Friday’s closing price of 585.57, this would equate to a $3.66 quarterly payout or $14.65 a share for the year.

“We believe a dividend will drive an incremental $4.5 billion in stock purchases (i.e., similar to adding a new top 10 holder) from top 20 dividend mutual funds and ETFs assuming Apple is a new 2.5 percent position,” wrote Brian Marshall of ISI in a note to clients Sunday following the Apple announcement. “We believe Apple could become the highest yielding stock in our coverage universe with a 2.5 percent dividend followed by Hewlett-Packard at 2.0 percent, Cisco at 1.6 percent, IBM at 1.5 percent.”

Shares of Apple are up 45 percent this year after releasing a new iPad last week and announcing blowout iPhone sales figures in January. But a big part of the move has been in anticipation of a dividend payout.

“We believe a yield in the 2 percent to 3 percent range would be very attractive for shareholders, including employees,” wrote Shaw Wu, A Sterne Agee analyst, in a note in early February.

Some investors said the company could also announce a special, one-time dividend in addition to, or instead of, a typical recurring one. Others believed that a stock buyback could be possible since repurchasing shares tend to be more popular than large dividends in the tech industry.

“Apple will likely declare a special dividend of roughly $30 a share along with a regular dividend of 1 to 1.5 percent,” said Robert Sinn, a trader and author of the popular “The Stock Sage” blog.

The last move of this magnitude by a large technology company was made by Microsoft in 2004 when it laid out a plan to return $75 billion to shareholders in the form of a dividend increase, a monster special dividend and a buyback. The shares remained stuck in a rut for the next seven years following this announcement with the stock basically unchanged as investors believed the payout marked the end of its period as a growth company.

Not that many believe the same fate will befall Apple following its announcement tomorrow. Analysts believe the company can have its dividend and its growth story too as it is just starting to penetrate emerging markets significantly and may release a revolutionary TV product later this year.

The speculation surrounding a payout this year can be traced back to the company’s earnings call at the end of January in an interaction between 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 four percent before that exchange took place. The cries for Apple, the world’s most valuable company, to do something with that cash has only grown louder since. Going by the Sunday announcement, CEO Tim Cook and CFO Oppenheimer sound like they are finally ready to answer this head on.

“Apple will not be providing an update on the current quarter nor will any topics be discussed other than cash,” stated the press release.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:00 ET on CNBC. Follow @CNBCMelloy on Twitter.




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