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If Apple Inc. (Nasdaq: AAPL) actually does what many now expect – raise the Apple stock dividend as much as 56% – it could help inspire a trend of givebacks by other cash-rich companies.
Looking at the company's cash hoard of $137 billion – which could reach $170 billion by year's end – a survey of analysts conducted by Bloomberg News this week concluded that an Apple stock dividend hike of $4.14 a share is a likely possibility.
That would raise the stock's yield from about 2.40% now to a much more attractive 3.6% –
higher than 84% of the other dividend-paying companies in the Standard & Poor's 500 Index.
An increase in the Apple stock dividend would almost certainly boost the stock price, which is down about 35% from its Sept. 19 high of $702.10.
"The accumulation of cash has become excessive," Brian White, an analyst at New York-based Topeka Capital Markets Inc., told Bloomberg. "It doesn't matter which bearish scenario you forecast, they're never going to need this much cash."
Apple Stock Dividend Could Set Tone for 2013
But Apple isn't the only U.S. company sitting on billions of dollars that shareholders would like to see returned to them.
According to Moody's, cash hoards at non-financial U.S. companies rose to $1.45 trillion by the end of 2012.
Apple tops the list by far, but five other tech companies landed in the top 10.
These companies face the same kind of investor pressure to pay them off that has been directed at Apple. If we do see an Apple stock dividend in the near future, such companies will feel even more pressure to return money to shareholders.
Here are the top 10 cash kings as of Dec. 31, 2012:
- Apple Inc.: $137.1 billion (2.40% yield)
- Microsoft Corp. (Nasdaq: MSFT): $68.3 billion (3.30% yield)
- Google Inc. (Nasdaq: GOOG): $48.1 billion (no dividend)
- Pfizer Inc. (NYSE: PFE): $46.9 billion (3.40% yield)
- Cisco Inc. (Nasdaq: CSCO): $46.4 billion (2.60% yield)
- Oracle Corp. (Nasdaq: ORCL): $33.7 billion (0.7% yield)
- Qualcomm Inc. (Nasdaq: QCOM): $28.4 billion (1.50% yield)
- General Motors Co. (NYSE: GM): $27.4 billion (no dividend)
- Amgen Inc. (Nasdaq: AMGN): $24.1 billion (2.0% yield)
- Ford Motor Co. (NYSE: F): $22.9 billion (3.0% yield)
Companies often resist shareholder payouts because they see a large stockpile of cash as an insurance policy against a weak economy, a means to re-invest in the business or ammunition for strategic acquisitions.
And one complicating factor is that many companies hold most of their cash overseas, having left profits there to avoid the 35% U.S. corporate tax they'd have to pay if they brought it home.
But when cash just sits on a company's balance sheet quarter after quarter, many investors simply see it as money that is rightfully theirs.
Dividends or Buybacks?
The more cash a company accumulates, the more vocal its stockholders become in their quest to encourage the company to share some of it.
Apple, of course, is the ultimate example.
Activist investor David Einhorn, who heads the Greenlight Capital hedge fund, created a major stir last month when he sued Apple over a shareholder ballot proposal that threatened to quash his idea to for the company to create preferred shares for existing investors that would pay a higher dividend.
Stockholders prefer dividends, but many also will accept share buybacks as way to reward investors, as the buybacks reduce the shares outstanding and, in theory at least, boost the value of the remaining shares.
Some Apple investors have pushed for buybacks.
"I'm with Warren Buffett on this," Chuck Jones, a principal atSand Hill Insights,told Forbes. "If you're stock is being discounted, go buy it."
Buffett has made several public statements recently suggesting that Apple should buy back shares while the stock price is depressed.
Apple conceivably could increase its dividend and buy back shares, but investors would be most pleased by a fat increase in the Apple stock dividend.
And that would surely get the attention of antsy shareholders of all the other cash-rich companies.
"You need to attract new investors, and I think one way to do that is to pay out a bigger dividend," White told Bloomberg.
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