Does Raising Apple's Dividend Make Sense?
Feb 16th 2013 8:00PM
Updated Feb 17th 2013 1:45PM
There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, after the company's recent backslide, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.
Brendan Byrnes: Hey Fools, I'm Brendan Byrnes and I'm joined today by our Tech and Telecom Analyst for Fool.com, Andrew Tonner.
Andrew, let's talk about the biggest company in the world -- the biggest company you cover, certainly, in tech -- Apple . A lot has been made to do about their cash situation; a massive amount of cash. What do they do with it? Does raising their dividend make sense?
Andrew Tonner: I think it makes perfect sense. I think it's actually probably more likely than not, at this point. Now we're starting to see activist investors clamor for them to do something with their cash balance because it is really growing to the point now where it's hard to justify, especially with interest rates remaining as low as they are, holding onto that cash or at least not taking some sort of proactive shareholder-friendly activity.
David Einhorn is the best example, coming up with a little more of a complex scenario than the average investor might be aware of, utilizing preferred shares rather than tapping in and directly paying out that cash as a way of realizing value for shareholders.
I'm not going to argue, necessarily, that they should go down that course but I think the overall point is, yes, Apple should do something with its cash balance. I think the thing that makes most sense would be either a massive repurchase, probably even coupled with a substantial dividend hike.
The problem is, so much cash is holed up overseas, but at the same time those repatriation taxes, while substantial, could really reinvigorate the share price.
We've seen Apple really struggle substantially since the announcement of the iPhone 5 last September. They hit the high of $700. We saw it shrink down below $450. It rebounded a little bit from there, but you see the company trading at such a bargain barrel valuation right now.
This is, I think, the reason for the most short-term bullishness for Apple, but if you look at the company too, I think it's a great buy right now for a number of reasons beyond that as well.
You've got a number of upside catalysts baked into the potential product cycle for them that could really reinvigorate the share prices as well. A low-cost iPhone 5 would be a great idea. We all know that Android is certainly taking them to the woodshed in emerging markets, and if Apple wants to reinvigorate revenue growth that would be a very, very intelligent move for them.
Then just the normal product refreshes as well. The iPhone 6 could come out. We probably should expect an iPad refresh as well.
Then you've got those wild card things as well that wouldn't necessarily contribute directly to revenue growth, say, in the next 12 months but would really help reestablish Apple's reputation as an innovator. Things like the iTV, or we've even seen rumors of the Apple Watch, or whatever you want to call the OLED watch, so there are a number of things baked into the stock, or at least in the coming months, that seem plausible and that could be huge catalysts to send Apple shares higher.
But at the end of the day, I think the thing that should happen most immediately, I think would be most beneficial for investors, would be yeah, some sort of dividend raise for Apple. I think it's more likely than not to happen in the next two to three quarters.
Brendan: OK, definitely something to keep an eye on, and something I'll be watching, as an Apple shareholder. Thank you Andrew.
Thanks for watching. Fool on!
The article Does Raising Apple's Dividend Make Sense? originally appeared on Fool.com.Andrew Tonner owns shares of Apple. Brendan Byrnes owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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