Why Apple Dividend Hike and Buybacks Matter More Than Earnings

Investors love dividends, and what they love even more is companies that are in the business of raising their dividends regularly. Apple Inc. (NASDAQ: AAPL) is the biggest stock in the world by market cap, and it is the most profitable. Now that it has built up a cash arsenal of well over $100 billion, investors are very focused on Apple’s dividend, as well as the ongoing stock buybacks.

24/7 Wall St. has been identifying companies that will, or are expected to, raise their dividends or stock buyback plans. When Apple reports earnings this coming Monday (April 27), the one thing that may matter more than anything is Apple’s capital return plans.

It may not be a surprise that Apple should raise its dividend and buyback plan. What likely will be up for debate the most is the “How much?” factor.

24/7 Wall St. thinks that Apple is going to have to be aggressive in its dividend hike. It also seems a shoo-in that Apple would be a candidate to handily boost its stock buyback efforts.

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Apple may be still considered a cheap stock against the market for growth investors, but its dividend yield is a mere 1.5% or so. Keep in mind that Apple just recently was added to the Dow Jones Industrial Average. Now go one step further, and think about the notion that just recently it was shown that over half of the Dow stocks outyielded the 30-year Treasury bond. That is substantial.

Barron’s threw out a $160 Apple share price target in recent weeks, and that was in part due to higher dividends and buybacks. What is funny is that $160 is no longer even that ambitious for a price target. Here are some of the more recent Apple target prices, with links through to more detail about each analyst call:

  • Wells Fargo was actually cautious, with a Market Perform rating and a $120 to $130 valuation range.
  • UBS had Apple as a “Buy Into Earnings” with a $142 price target.
  • RBC has an Outperform rating and $185 target.
  • Argus outlined how Apple could ultimately hit $200 longer-term, with a more conservative near-term target.
  • Maxim Group sounded cautious, with a Hold rating, but it has a $144 price target.
  • Cantor Fitzgerald has a Buy rating and $180 target.
  • Raymond James recently downgraded Apple to Market Perform from Outperform, based on valuation and targets.
  • Canaccord Genuity recently raised its price target to $150 from $145.

So, Apple reports earnings on Monday after the markets close. Thomson Reuters has consensus estimates of $2.15 in earnings per share (EPS) and $55.91 in revenue. In the second quarter of the previous year, Apple posted EPS of $1.66 and $45.65 billion in revenue. Looking ahead to the fiscal third quarter, there are consensus estimates of $1.68 in EPS and revenue of $46.94 billion.

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While investors will clamor for data on iPhone 6 sales, the real behind-the-scenes issue on top of earnings and guidance will be how much Apple plans to return to shareholders via dividends and buybacks. There is a warning here, about which Tim Cook almost certainly knows: Apple investors will be severely disappointed if the dividend does not get lifted and if Apple does not plan to be increase its share buyback efforts.

Any word about sales of the Apple Watch will be an after-the-fact report. That is because the launch was after the end of the quarter.

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