John Paczkowski

Recent Posts by John Paczkowski

Apple’s Cash Could Buy a Safety Net for Stock Price

safety_netWith Apple’s recent shareholder meeting and the “silly” capital allocation sideshow that preceded it concluded, many expected the company to celebrate the one-year anniversary of its quarterly dividend and share repurchase program Tuesday by distributing to shareholders a bit more of the $137 billion in net cash it held at the end of the December quarter.

But March 19 came and went without any dividend news from Apple. And with no announced capital allocation plan, Apple’s cash hoard is going from outrageously excessive to obscenely excessive. As I noted earlier this week, Moody’s Investors Service believes that Apple’s cash will exceed $170 billion by year’s end if the company doesn’t start returning some of it to shareholders.

Apple is never going to need that much cash on hand. But it could put some of it to good use right now. The sad truth is that Apple’s once skyrocketing share price has been hamstrung by questions about its capital allocation plans. And that will likely continue to be the the case until it answers them (or releases another industry-redefining product).

So why not erase current stock woes with a larger cash distribution? Topeka analyst Brian White thinks Apple would be foolish not to. By increasing its quarterly dividend, Apple could stabilize its stock price. So, if, as White theorizes, the company is generating approximately $50 billion in free cash flow per year, why not do it?

“We continue to believe that Apple should increase its quarterly cash dividend payout from $3.75 to $5.00 per share,” White explains. “At the same time, Apple has plenty of room to ramp up the stock repurchase program to as high as $100 billion as part of a five-year initiative. If debt is part of the equation, investors will be more than happy to see Apple assume leverage to pay out more cash.”

A larger cash distribution like this would create a “safety net” around Apple’s stock, says White. And that’s a first big step in stabilizing the company’s share price. Once that’s done, Apple can focus on tapping into new areas of growth and divining the new product categories that might someday spike its stock again.

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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus