Wednesday, September 14, 2011

Apple to institute a dividend?

On Fast Money yesterday, I watched an interesting interview with Kate Huberty an analyst with Morgan Stanley.  She thinks that Apple in it's quest to become the biggest company in the world by market capitalization, is going to institute a dividend.  Right now, Exxon Mobil has a market capitalization of 348.4 billion and Apple has a 356 billion valuation.  Here are some of her reasons that Apple might institute a dividend.

  • Apple generates 30-40 billion a year in cash
  • Apple is going to have 100 billion in cash on its balance sheet in 6 months
  • Apple would generate more buying interest in the stock if it were to institute a dividend
  • Value investors would buy in if there was a dividend
     She also thinks, best case scenario Apple will earn 50 dollars a share next year.  At current levels that puts a forward earnings multiple of about 8 on the stock.  Back out the current cash on the balance sheet and you get a forward multiple of 6.  Apple's stock is incredibly cheap right now.  Her 12 month price target is 468 dollars but in a best case bullish scenario her price target is well over 500.  

     Apple has a nice product refresh cycle coming up as well.

  • iPhone 5 is coming out in the next few weeks including a Sprint iPhone with unlimited data. 
  • iPad 3 coming early next year
  • new Mac Air within the first 6 months of next year
  • new low priced iPhone in the next 6 months of next year.  
  • long term, Apple TV will come out which she thinks will generate an additional 19 billion in revenues.
     All in all, Apple looks like a great buy right here for the long term.  It is cheap, it is coining money and it may institute a dividend.  I'm of the opinion that it will not institute a regular dividend but might have a special one time dividend for shareholders.  I don't know how much it will be but they could safely drop 20-40 dollars a share to investors and still have a mammoth amount of cash on their balance sheet.  They would still have enough money to buy a company like Groupon or Hulu.  I am going to pick some up on a breakout past 392. 

     Here is the interview if you want to take a gander at it...

Economic Data
     Retail sales for the month of August came in flat which was lower than expected.  Economists had expected a .2% rise which is a 2.4% annual growth rate.

     "An increase in sales of electronics, gasoline and food were balanced with drops in purchases of cars, furniture and clothes. Spending at restaurants and bars also dipped," said CNBC.
     Consumer spending was hurt by turmoil in the financial markets after politicos brought us to the brink of armageddon with the whole debt ceiling fiasco.   Stock futures pared gains after this report.

     In other economic data, the PPI or producer price index was also flat for August after rising .2% in July.  The PPI measures prices for the producer of goods.  This is a sign that inflation could be easing after sharp rises in oil and other commodities earlier in the year.  Rising food prices were offset by falling energy costs.  With inflation in check, this could encourage the federal reserve to take additional stimulis measures. 

     Markets opened higher but were seen down recently after the head of the European Commission said it will present ideas for joint Eurobonds.  Investors had been clamoring for Eurobonds to address the regions debt crisis but Germany had balked at the idea because they knew they were going to be on the hook for any default.  It seems markets are taking a wait and see attitude about this because stocks are selling off today on this news.  Markets probably do not believe this is a serious proposal or has a chance being implemented. 

     The DJIA is down 20 pts as of 717 AM PST.  The SNP 500 is down 2 pts and the NASDAQ is up 5 pts.  European stocks are broadly higher as bargain hunters have stepped in after a vicious selloff with the German Dax up 2% and London FTSE up 1%.

2:36 PM PST Update
     Today's action was very healthy with the first 3 days up in a row in September.  The DJIA was up as much as 250 pts before paring gains into the close.  The Dow finished up 140 pts but strength was found in the tech heavy NASDAQ index which was up 1.6%.  I don't make too much of the selloff into today's close, the more important thing in my opinion was we were up over 100 pts and it looks like momentum is building.  NASDAQ had real good volume today as well which confirms the rally.  It looks like we could get some follow through for the rest of the week.

     AAPL once again bounced back from resistance at 392.  It is having problems getting past that level.  I expect it will soon blast past it however in the midst of a nice market rally.

     With the eurozone situation stabilizing somewhat Gold has petered out trading in a 100 dollar range for the past 12 days or so.  The last 3 days gold has traded in an even tighter 50 dollar range.   Gold seems to have some nice short term support at 1800.  It is a good sign that gold has held up relatively well even as the dollar strengthened.  With the range narrowing, I'd expect gold to do something dramatic soon and my money is on another breakout.  The next fed meeting is coming up in a week which could provide a nice upside catalyst.


  1. While all of those points make a lot of sense, i still dont believe that Apple will start paying dividends. I just don't see it happening.

  2. Seems a logical idea to start paying dividends, I hope to see it happen.

  3. i've given up on trying to predict economic behavior. people too often make irrational choices for all kinds of weird reasons.

  4. Great read. Apple has come a long way to the forefront.

  5. Not fond of Apple products, personally, but they're doing fine without my custom.

  6. And then we look to see how well Microsoft is doing. :P

    I doubt Windows 8 will send their stocks skyrocketing.

  7. yeah, stocks in apple does seem like a great idea. i should really begin investing

  8. Hot!
    Come check me out =)