There are a lot of rumors heading into Apple Inc.’s (AAPL) annual investor meeting on Wednesday. Some analysts believe that a dividend hike is necessary, while others are floating the idea of a possible stock split. However, an analyst at Jefferies & Co. believes that a longer-term outlook on the tech giant is a more important discussion; the current stockpile of cash on hand will be needed more than expected as AAPL is possibly in-store for a rough couple of years.
Citing slowing international sales and increasing capital expenditure (CapEx) requirements, Jefferies’ analyst Peter Misek believes Apple will be in for a tough two-year period.
The recent discussion about what Apple should do with its roughly $137 billion in cash has stolen many headlines over the past couple of weeks. Misek believes that this stockpile of cash will be necessary over the next couple of years as the company struggles to compete and keep up with past expectations; the excess cash will give the company some sort of flexibility. This is especially true if CapEx doubles over the next two years as some forecast.
Moreover, if Apple does struggle over this period, executive management will search for ways to increase shareholder value. The cash will give the company the ability to increase dividends and share buybacks to aid in attracting investors over the near to intermediate future. Misek believes this strategy will be more effective than a preferred share strategy that investor David Einhorn has suggested.
Though Misek believes it may be a transitional period for Apple, the $137 billion in cash can give the company some wiggle room to stay an attractive investment at a time when most would continue to fall.
Jefferies currently rates AAPL as “Hold” with a price target of $500. This target suggests a 11% upside to Tuesday’s closing price of $448.97.
Apple shares were down $1.66, or -0.37%, during pre-market trading on Wednesday. The stock is down -14.06% over the past year.
The Bottom Line
Shares of Apple (AAPL) have a dividend yield of 2.36% based on last night’s closing price of $448.97 and the company’s annualized dividend payout of $10.60 per share.
Apple Inc. (AAPL) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.
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