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Analyst meets with Apple CFO; expects 6% cash return-update

February 22, 2013: 6:47 AM ET

Morgan Stanley's Katy Huberty thinks Apple should borrow to pay its shareholders

Apple CFO Peter Oppenheimer

Apple CFO Peter Oppenheimer

Huberty

Huberty

FORTUNE -- While Greenlight Capital's David Einhorn was lobbying shareholders Thursday to support his perpetual preferred stock idea (see Would you buy an iPref from this man?), Morgan Stanley's Katy Huberty has been meeting with the Apple (AAPL) executive who rejected Einhorn's proposal last September: Chief financial officer Peter Oppenheimer.

In a note to clients Friday, Huberty reports that she came out of those meetings convinced that Apple is likely to increase its current 2.3% dividend and boost its stock buybacks.

"Our analysis," she writes, "suggests Apple can match the S&P IT sector's average FCF [free cash flow] payout of 68% if it returns $28B in FY13, implying a 6% total yield. High mix of international cash limited flexibility in the past but raising low-interest debt can help address this issue, in our view."

Borrowing money to give to shareholders is also the approach favored by Bernstein's Toni Sacconaghi, who has been hounding Apple's board of directors to issue a dividend since 2008, when the company's cash horde was less than $30 billion. Apple grew its cash holdings by $39.5 billion in just the last 12 months to reach a total of $137.1 billion.

CORRECTION: An earlier version of this story had Huberty anticipating a 6% dividend. A note she posted on Feb. 13 makes it clear that the "6% total yield" to which she refers includes both dividends and stock buybacks.

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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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