Stern Agee Outlines Case for 2% to 3% Dividend by Apple (AAPL, MSFT, INTC)

By Jon C. Ogg Updated Mar 30, 7:48PM EDT · Published Feb 10, 9:13AM EST

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Apple Inc. (NASDAQ: AAPL) has been hitting new all-time highs of late, and analysts have been ratcheting up their price targets. We recently noted one analyst call for a $665 price target and now we have a new call from Stern Agee this Friday morning. The firm is reiterating a Buy rating and it has a $550 target. What is more interesting than other points about raised estimates is that the report notes that paying a dividend would be the best use of the firm’s capital for shareholders now. The call is ahead of the annual shareholders meeting that is just two weeks out on Thursday, February 23, 2012.

The report cites, “We believe the topic around uses of cash including paying a dividend will likely be discussed and we view that as a potential positive catalyst for shares. Despite the run-up in shares, AAPL remains one of the top hardware picks…we wanted to give an update on thoughts of potential uses for cash.”

The report notes that a dividend makes a lot of sense but the timing of calling for a dividend is not easy. On the size it says “We believe a yield in the 2% to 3% range would be very attractive for shareholders, including employees. The reason is that the company’s strong cash flow should be able to fund this (which we estimate could be $75-$80 billion in the next four quarters vs. the $45.3 billion we estimate the company generated in the last four quarters). The company’s net cash position currently stands at $97.6 billion and is growing quarterly.”

As far as supporting the thesis it notes that Microsoft Corporation (NASDAQ: MSFT) and Intel Corporation (NASDAQ: INTC) pay dividend yields at 2.6% and 3.2%, respectively. It also cites that paying a dividend would bring in a new class of investors where funds that only invest in dividend paying stocks could now own Apple shares and that it would further stabilize its shareholder base.

JON C. OGG

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.