“Now that Apple is no longer a high-growth company, it may be time for it to stop hoarding cash and return more of its still-ample earnings to shareholders through dividends and share repurchases,” Andrew Bary writes for Barron’s. “Either move could help Apple shares, which tumbled 12%, to near $440, last week, 38% below their record high of $705, hit in early September. Apple is the S&P 500’s biggest percentage loser this year. Apple (AAPL) looks cheap, despite analysts’ profit-estimate cuts for its 2013 fiscal year, ending in September. Apple’s P/E is just seven, when the company’s $137 billion, or nearly $145 a share, of cash is worked into the equation. Cash, which rose by $16 billion in the quarter, accounts for more than 30% of Apple’s stock-market value.”
Bary writes, “Only in the technology sector do companies hold so much cash, and Apple is the champ, with more than twice as much as No. 2 Microsoft. Tech outfits view cash as a security blanket, and Apple’s struggles in the 1990s have made it especially conservative. The cash could hit $200 a share or more by the end of its fiscal 2014. Investors don’t give Apple full credit for it, however, partly because they doubt they will ever get it.”
“‘There’s a strong belief among investors that a higher return of cash is warranted,’ says Toni Sacconaghi, a technology analyst at Bernstein. He argues that Apple should ‘significantly increase the dividend’ to 3% or more. ‘The real magic number is 4%,’ which would mean an annual dividend of about $18 a share, which could boost the stock by attracting income investors,” Bary writes. “Says David Rolfe, chief investment officer of Wedgewood Partners, a Missouri investment firm that holds the stock: ‘Apple is a broken growth stock, but it’s not a broken growth company.’ Still, broken growth stocks tend to trade at low valuations. When Apple was the world’s biggest growth story, dividends didn’t matter. Now they do.”
Read more in the full article here.
MacDailyNews Take: These calls for increased dividends and/or buybacks are only going to increase until Apple smashes The Street or, better yet, revolutionizes yet another multi-billion dollar industry.
We don’t envy the pressure Tim Cook is going to have to face until then.