could purchase just about anything with its $122 billion wad of
cash. In fact, the company has the ability to double its yield
right now without even breaking a sweat. It holds that much in
Apple's cash hoard is enough buy all of the gold reportedly
stockpiled in the People's Republic of China. Moreover, they
could even afford to sweeten the deal and pay $1,900 per
At $1,900 per ounce, gold sells for $61.1 million per ton.
China supposedly stores about 1,054 tons of gold, which has a
value of roughly $64.3 billion.
Apple could purchase all of PRC's gold (for a 10% premium) and
have $58 billion remaining.
It's unlikely the company will begin to hoard gold. However,
Apple's cash balance has clearly reached an absurd level.
The easiest (and wisest) way for Apple to spend its money would
be to distribute it as a dividend. Though AAPL already yields a
respectable 1.8%, its payout could be far grander. And I think
Apple is going to increase their payout next quarter. Here are
three reasons why.
First, when Apple initially announced its dividend in March - the
first since 1995 - the company had more than $97 billion in cash.
It seemed to have begun the program because management didn't
know what else to do with the funds - a little shareholder
pressure likely helped, too.
As of September, Apple boasted more than $122 billion in cash and
equivalents, amounting to an additional $25 billion more than it
had available to distribute in March.
As Apple's products became more popular, its cash balance
ballooned. The company simply cannot spend nearly as much money
as it brings in.
Apple currently dishes out around $10 billion in dividends each
year. Because their cash balance has grown by more than $25
billion in two quarters, management will increase the dividend
next year or declare a special one-time distribution to benefit
high tax bracket payers in 2012.
Second, bond yields are incredibly low. The low yield creates a
problem for baby boomers looking to generate investment income.
Accordingly, many of those investors have flooded into
traditional high-yield groups - such as consumer staples,
utilities or REITs - as alternatives to owning bonds. Other
companies have taken note, too.
The number of S&P 500 companies paying a dividend is the
highest since 1999, hitting 403 earlier in the year. Moreover,
many of the new dividend payers are major technology companies -
including Apple and NVIDIA. Also, analysts expect that
third-quarter distributions will be 20% higher than last year
despite sluggish earnings growth.
Companies understand that as investors rush into high-yield
stocks, they push the valuation higher. In order to stay
competitive and support their stock, management teams will look
to initiate or raise dividends more aggressively than in the
past. That's why dividends have increased even though earnings
have not. Apple pays out only 24% of its net profit, so it has
plenty of leeway to increase its distributions at a rate that
exceeds other companies.
Finally, Apple is a fast-growing technology company. It isn't a
utility, REIT or from some other slow-growing industry that's
notorious for high yields. Admittedly, Apple's growth is slowing.
But it's not slow, at least compared to utilities and REITs.
Analysts expect Apple's EPS to grow 11.7% this year and by 17.6%
next year, amounting to more than $95 billion in income over two
years. That amount of income could push the company's cash
balance to $210 billion in 2014. More importantly, the earnings
growth would provide the company with an extra $12 billion. If
Apple's management only maintained their current payout ratio on
the $12 billion, it would be enough to raise dividends per share
Though AAPL yields 1.8%, this amount should be higher. The
company has $25 billion more than it had in March. And every
additional $1 billion is enough to raise dividends by $1 per
share. Also, many companies are expanding on current dividend
programs. In order to stay attractive, Apple must outpace the
competition. Lastly, the company is a growing business that will
generate a higher income every year. Shareholders should expect
Apple's dividend distributions to grow at least as much as
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