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Apple's dividend and buyback: What the analysts are saying

March 19, 2012: 10:19 AM ET

Apple (AAPL) gave Wall Street what it had been asking for

The Street's reaction has been largely positive, and the stock closed Monday at a new all-time high: $601.10, up $15.53 (2.65%) for the day.

Jefferies' Peter Misek:  Dividend and Buyback Bigger Than Expected. Apple announced a $10.60 annual dividend (1.8%) commencing in CQ3 and $10B buyback over three years (to offset dilution). We had expected a dividend announcement in H2 in the $5-$10 range. The buyback was unexpected. We see this as very positive for the stock as the large market cap is one of the major hindrances to further upside, and this announcement will allow dividend investors to get involved. We reiterate our Buy. Price target: $699.

Bernstein's Toni Sacconaghi. At Last, Cash Cometh to Shareholders. We have been clamoring for Apple to return cash to shareholders since August 2010, when we wrote an open letter to Apple's Board on the topic...  Overall, we are pleased that Apple has chosen to return cash to shareholders... That said, we are somewhat disappointed in the size of the dividend (1.8% vs. an expectation among investors of 2-2.5% and S&P yield of 2.0%) and the mix of the return of cash. For a company that prides itself on thinking differently, Apple's announcement reflects a pretty vanilla return of cash program. Apple remains our top pick and we rate it outperform with a price target of $710.     

Goldman Sach's Bill Shope:  A major catalyst fulfilled, many more to come. While the dividend was essentially in line with expectations, we view the share buyback authorization as an incremental positive. In addition, on the conference call this morning, we believe Apple's management appeared very willing to consider steady increases in the dividend and share repurchase rate over time. We believe that today's announcement, coupled with additional positive catalysts that we expect through the year, should continue to lift the stock higher. We reiterate our CL-Buy and raise our 12-month price target to $700 from $660.

Piper Jaffray's Gene Munster: Dividend Achieves Primary Objective Of Expanding Shareholder Base. As had been widely expected, Apple announced a quarterly dividend starting in the September quarter. The $2.65 per quarter dividend represents about a 1.8% yield. The company will be paying around $10 billion in total dividends per year at the current rate. At the end of the day, we believe the company will still be adding net cash to their US cash holdings. We estimate that Apple will generate about $70 billion in operating cash flow in FY13, 40% of which we estimate will be from the US. Excluding the dividend/ buyback, Apple should still generate between $11-13 billion in US cash in FY13. While some investors may have wanted some more visibility into future increases in the dividend, we believe the dividend achieves the main goal of expanding AAPLs share holder base. Given Apple will still be generating significant net cash, we believe the dividend could increase by 20% after the first year.  Maintain Overweight rating and $718 price target.    

Merrill Lynch's Scott Craig: Capital development a step in the right direction; Buy. A quarterly dividend of $2.65/share or ~1.8% yield ($10bn+ annual cash outlay) is roughly in line with the S&P500's yield, and around the low end of investors' expectation of 2-3%. We believe management will likely consistently raise the dividend level, given our expectation of strong free cash flow. While a $10bn share repurchase program was somewhat expected, the 3-year timing forecasts the overall impact to be minimal (<1% EPS accretion in F2013). Combined, the dividend and buyback allows Apple to preserve its domestic cash balance and remain flexible for growth opportunities. With Apple likely to generate ~$15bn of domestic FCF/year ($45bn overall), the announced program should not impact its domestic cash balance ($34bn) and enable the overall cash balance to grow (~$65bn growing $30bn+ per year).  Maintain Buy. Price target: $610.

J.P. Morgan's Mark Moskowitz: Eureka! Apple Further Rewards Shareholders. While the 1.8% dividend yield is slightly smaller than the 2-3% investors hoped for, the addition of the share repurchase program is a nice surprise, in our view... With Apple, a dividend is not a sign of the high-growth days being over. Instead, the dividend reflects the major cash flow generation power that is attached to Apple's high-growth operating model, which we think can continue due to the company's low penetration rates in its end markets.  Overweight. Price target: $625.

Morgan Stanley's Katy Huberty: Return of Cash Broadens Investor Base. A dividend is the most favorable outcome for shareholders, as it could boost long-term stock performance and expand the investor base. Since 2002, the top one-third of tech stocks ranked by dividend yield has outperformed the bottom third by 14%, according to data from our US Equity Strategy team (right chart). Additionally, Apple's shareholder base has a lower exposure to income and yield funds compared to tech peers, according to Thomson Reuters, suggesting the dividend could attract new investors. Base price target: $720.

Barclay's Ben Reitzes: Something for Everyone. Most importantly, Apple gave a thorough explanation of its decision and reiterated its confidence in future growth opportunities, including its product pipeline. Apple has many opportunities ahead given their rapid organic growth rates in key markets such as smartphones, and tablets, combined with international growth opportunities across its product lines including Macs which only currently hold 6% share worldwide. In short, we believe the announcement holds promise for all types of investors; growth, value and income – which should attract more shareholders. Our price target is now $730 based on 12.5x our new FY14 estimate of $58.40.    

Deutsche Bank's Chris Whitmore: An expected positive. The dividend announcement was in-line with expectation and the buyback was a modest positive. We view the timing of the dividend announcement as somewhat of a surprise and a distraction (coincides with the new iPad release); particularly given the dividend and buybacks will not take effect until September. Maintain buy. Price target: $600.

FBN's Shelby Seyrafi:  AAPL has the wherewithal. AAPL finally decided to initiate a dividend (initial yield: 1.8%) that, in our opinion, may expand meaningfully going forward (especially if tax laws change). These actions will expand the pool of investment funds that can invest in the name, so are positive for the stock. The $10B stock repurchase plan, over three years, seems a bit low for now. However, we believe that it is an initial step and it could expand substantially in the future. We retain our Outperform rating and raise our PT on AAPL from $730 to $760. 

Morningstar's Michael Holt: Apple Puts War Chest to Work. We view this move as a positive for Apple, but our fair value estimate does not change as this simply represents a partial distribution of the $98 billion in cash and investments that we were already accounting for in our fair value estimate. This move is a positive, however, because it lowers the risk that Apple will pursue aggressive acquisitions or other riskier uses of cash. This move could also generate interest in the stock from shareholders that have a dividend focus. Fair value: $560. Consider buy: $338. Consider sell: $868.

More as they come in.

Apple's dividend press release.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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