This Thursday, February 23rd, Apple (AAPL) will hold its annual shareholder meeting, and many expect this meeting to be a turning point in the company's history. Many investors are calling for Apple to use some of its hoard of cash and investments, which has swelled to nearly $100 billion in recent quarters.
Given how Apple is doing, it is quite possible that Apple's cash and investments pile is in the range of $102 to $105 billion currently. However, for this argument, let's just assume it is $100 billion. How big is that financial hoard? Let's look at what Apple could, but won't, do with that money.
- Apple could buy Amazon (AMZN), Netflix (NFLX) and Coinstar (CSTR) at their current market prices, and still have about $8.8 billion left.
- Apple could buy more than 1.5 billion replica Jeremy Lin Knicks Jerseys from the NBA store, at a price of roughly $65 each, including shipping.
- Apple could give everyone in the United States approximately $320 each, based on an estimated population of 313 million.
- Apple could buy Facebook, and depending on the price, have up to $25 billion left over.
Those are just four things Apple could do with its money. But it won't do any of those, it's just fun to think about. So let's get serious. What will Apple do at this week's shareholder's meeting? Well, a new iPad announcement is unlikely. That appears to be happening sometime in March. Here are the five scenarios I see as possible, ranked in terms of best chance of happening to least chance.
1. Start Paying a Quarterly Dividend
Apple has enough financial flexibility to start paying a regular quarterly or even yearly dividend. $100 billion of cash and investments is a large cushion, so a dividend is very possible, and it seems to be the prevailing thought in the markets currently. For those who think this would be the first time Apple paid a dividend, it is actually not. Apple actually paid dividends from 1987 to 1995, according to its financial history website. Apple seems to be in enough shape to pay a decent size dividend. I would guess that they could pay up to about $4 a quarter currently without any problems. For every dollar Apple paid (per quarter), the stock would yield about 0.8%. So a dividend of $2 per quarter would currently yield 1.55%. Apple has more than $105 of cash and investments per share currently.
2. Start a Share Repurchase Plan
Apple could start buying back its own stock, and still could pay a dividend given its financial flexibility. Since Apple is not buying back shares, its outstanding share count is rising each quarter, so Apple would need to buy back about $5 billion or so each year just to keep the share count from rising even more.
Nobody is worried about the increasing share count, but Apple could get the share count to start going down with a buyback. If Apple does start a buyback of its own shares, I would expect a three- to five-year plan, with a total buyback of $20 to $40 billion. Given $100 billion and Apple's Tuesday close, the company could currently buy back about 194 million shares. As of the last quarter, the company had over 930 million shares outstanding.
3. Announce a Stock Split
With Apple's share price rising over $500 recently, it does bring into question if a stock split is coming. A stock split would certainly open up more shares at a lower price, affording an opportunity for investors with smaller pockets to get a share of the largest U.S. company. Apple has split three times in the past (see dividend page linked above for actual dates), so it is something Apple is familiar with.
If Apple ever wanted to get into the Dow Jones Industrial Average, it would most likely require a stock split of at least 2 or 3 to 1 since the Dow index is price weighted. We've seen some stocks struggle with such high dollar values, such as Google (GOOG). Just three years ago, Baidu (BIDU) was approaching $700, and it split 10 for 1. The split worked and the stock has doubled since then. Apple can get to $700, but I don't see it getting to $1,000 a share, not in this form anyway. I think the stock will split eventually, and there is a small chance we get news of that this week.
4. Apple Pays a One-Time Dividend
I've heard this idea kicked around recently, but it is the least likely of the four possible things Apple announces (yes, there is a fifth outcome below). In this scenario, Apple would pay a one-time dividend to shareholders, which would probably just result in investors jumping in to receiving the dividend and then selling shares whenever is most beneficial for them (think of tax implications). With all of the financial flexibility, Apple could easily pay a one time dividend of say $5, $10, maybe even $25 or more. But remember, about two thirds of Apple's cash and investments are offshore held, so there would be taxes involved for Apple to bring them back into the U.S.
5. Apple does nothing
Despite all of the talk recently about dividends and such, it is possible that Apple could decide to do none of the above. Apple could decide to stand pat, taking the stance that they want to focus on launching the new iPad before deciding on anything else. They certainly have earned that right. However, I think this would be seen as a disappointing outcome, and might send shares lower in the short term. If Apple decides to do nothing this week, everyone will look for some kind of announcement when they report their quarter sometime in mid to late April.
Like I said, my list was in order of what I thought was most possible to least possible. Since there is a chance of multiple things happening, for instance, a stock split and a quarterly dividend, or a quarterly and one time dividend, or even a dividend and a buyback, I have not listed any numerical probabilities for each scenario. But I think the quarterly dividend is most possible, and that's what I think will happen.
I expect Apple will announce a quarterly dividend in the $1.50 to $2.00 range. I know that Apple has the cash hoard and flexibility to pay more, but I think they will start at a decent amount so they can increase it in the future. Sure, Apple could easily pay $3 or $4 a quarter now, but they wouldn't be able to increase it as much going forward, and if for some reason Apple took a financial hit, they wouldn't want to decrease the dividend.
One thing is for sure. There is going to be a lot of talk about Apple over the next few days, and the shareholder meeting is going to be covered extensively. It will certainly be an interesting day for Apple, and for the market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.