In the endless efforts to return capital to shareholders, companies generally aim to repurchase shares of their own common stock or they go out and pay dividends. Wall Street seems to have become not just enamored by the return of capital, but addicted to it.
Apple Inc. (NASDAQ: AAPL) is already one of the 24/7 Wall St. buyback kings for 2016. Now there is a larger call that might draw the attention of investors. It could also draw a line in the sand over how much capital should be returned, and how it is returned, to shareholders.
It seems that the investing community might be hoping for a larger dividend and a larger stock buyback announcement with earnings in April. RBC Capital Markets analyst Amit Daryanani has said that Apple could raise its stock buyback program to a new level of $40 billion to $50 billion on an ongoing basis.
Daryanani also thinks that the dividend payout rate could be raised by 10% to 15%. If accomplished, its 2% yield now could jump to 2.2% to 2.3%. His view is not just that the dividend yield would rise, but that Apple could juice its earnings per share growth by 4% or more for the current year. The consensus 2016 estimate is $9.07 earnings per share, giving Apple a price-to-earnings (P/E) ratio of 11.6 for its current fiscal year earnings per share expectation.
The real issue to consider is what this might mean for shareholders. Apple just saw three positive analyst calls late last week, all for differing reasons, but RBC stuck with Apple too. Sadly, this trend could run into some issues. Apple is not alone in having overseas capital that it cannot repatriate without a 35% penalty. That would make the capital highly expensive, unless it proceeded to issue yet even more debt to finance endless buybacks and dividend hikes.
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