Will Apple Use a Dividend Hike To Placate Shareholders?

Apple (NASDAQ:AAPL) will report fiscal second-quarter earnings after the markets close on April 23 and speculation about the company’s performance is already rampant. On average, analysts are expecting earnings of $10.13 per share, a 17.6 percent year-over-year decrease. Revenue is expected to increase 9 percent year over year to $42.70 billion.

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Here’s a quick look at how Apple has performed over the past few quarters:

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 39,190 35,020 35,970 54,510 42,700
Diluted EPS ($) 12.30 9.32 8.66 13.81 10.13

And just to recap, Apple provided revenue guidance in a range between $41 and 43 billion. Second-quarter margins are expected to be between 37.5 and 38.5 percent, slightly below the 38.6 reported in the first quarter.

All in all, sentiment about the upcoming earnings appears to be mixed but biased toward pessimism. Recently, it seems like the only thing that has been able to drive up Apple’s stock is speculation over a dividend hike. Since there has been no announcements so far, observers have suggested that the company could be waiting to use a dividend increase as a band-aid for poor financial results…

While often vehemently divided over the company, analysts and investors have both rallied behind the idea that Apple needs to do something with its $137 billion cash-and-investment war chest. Most proposals have been shot down so far — iPrefs, awkward acquisitions, bailing out Cyprus — and the consensus expectation is that if the company does not tip its hat to shareholders soon, it could face harsh selling pressure.

The average estimate of six analysts polled by Bloomberg in March puts a probable dividend increase of 56 percent on the table, hiking the yield up to about 3.7 percent, or $4.14 per share. At that rate, Apple would boast a dividend higher than 86 percent of the companies on the S&P index. The very idea of such a tremendous payout had shares up as much as 2.7 percent on March 18, the eve of the anniversary of the dividend’s reinstatement. The stock is down about 7.1 percent since then.

A number of analysts have called for Apple to increase its dividend, including Topeka Capital Markets analyst Brian White. In March, the analyst wrote that “given that Apple’s recent shareholder meeting is out of the way and David Einhorn successfully made his case for a much larger distribution of cash, the timing is right for a bigger deployment of cash… We continue to believe that Apple should increase its quarterly cash dividend payout to $3.75 to $5.00 per share (annual yield of 3.3 to 4.4 percent).”

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Investors and company observers will remember that Apple’s stock faced sharp selling pressure after its last earnings failed to meet Wall Street’s high expectations. No doubt, if the company does have weak numbers up its sleeves, it could be entertaining the idea of a dividend hike.

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