Wells Fargo: More buyback and payback for Apple shareholders

From Eric Savitz’s “Apple Is Likely to Boost Dividend, Stock Buyback Plan” posted Monday on Barron’s:

As Wells Fargo analyst Aaron Rakers pointed out in a research note, Apple (AAPL) is likely to both boost its dividend and increase its stock-repurchase authorization when it reports its March quarter earnings on April 28.

Rakers expects a dividend boost of at least 10%, which compares to increases of 6.5% last year and 5.5% the year before that. The company currently pays 20.5 cents per share quarterly, for a yield of 0.6%.

Apple will expand its stock repurchase program by $50 billion, Rakers said, after exiting the December quarter with $32.4 billion remaining on its previous authorization. That would match the $50 billion authorization announced a year ago.

“Our positive view on Apple’s continued ability to generate strong free cash flow supports our view that the company could return its annual dividend growth trajectory into the double-digit percentage range,” he wrote.

Maintains Overweight rating and $155 price target. 

My take: Music to shareholders’ ears, but how does he know?

16 Comments

  1. John Konopka said:
    The dividend increase is likely as Apple increases this every year at this time. A 10% increase seems likely. I would think a 50% increase would be possible. My thinking is that this would put the yield back up to about 1% which is within historical norms. I put this at the upper limit of possible increases.

    Updating the buyback authorization seems likely as well as Apple is still making boatloads of cash and has said they intend to become cash neutral in the near future.

    4
    April 19, 2021
  2. Fred Stein said:
    Indeed, Music to this shareholder’s ears.

    How does he know (Re divi increase)? One guess – Current Payout Ratio is 21.7% v. Apple’s historical ratio of about 25%. Future EPS and Cash Flow increases make it easy for Apple to give a decent divi bump.

    9
    April 19, 2021
    • John Konopka said:
      That’s a good point. The stock price has risen faster than 10% for the last few years so dividend increases in the range of 6 to 10% mean the yield has fallen quite a bit.

      On the other hand, cash flow hasn’t risen as rapidly so the payout ratio hasn’t changed as rapidly.

      Mathematically, a 50% increase is not outrageous, but I agree that a 6-10% increase is more likely.

      2
      April 19, 2021
  3. David Baraff said:
    I’ve thought many times, “surely this time there’ll be a much bigger dividend increase” and every time I’ve been wrong. I think basic conversativism rules here, and there’s huge appeal to Apple at being able to reliably increase between 5-10% every year, under any circumstances.

    Could they afford a 50% increase? Sure. But if they *don’t* increase it by 50% when they can easily afford it, that means that a lot would need to go wrong before they get knocked off of reliable 5-10% yearly increases.

    And I think they like stability. Don’t get me wrong, I would be over the moon at a 50% “iCash” raise (as we call it around here), but I’d wager a good deal it ain’t happening. (Easy enough to say, cause if I lost, I’d have the money to cover just about any bet I put down!)

    8
    April 19, 2021
    • John Konopka said:
      Years ago, just before Apple started paying dividends again, at a shareholders meeting I asked Tim Cook for his thoughts about dividends. I didn’t make a case for or against, I wanted to hear his thoughts. Maybe we could find this on the net, his reply was picked up by Bloomberg.

      If I recall correctly, he was not very enthusiastic about dividends because of the tax issue. Apple pays dividends with after tax money and the shareholders are taxed as well. When they did start paying dividends again Time Cook said very clearly that Apple intended to raise the dividend every year.

      Between these two statements I guess we get the small but steady dividend increases and relatively large buybacks.

      Another way to look at it is that the share count recently has dropped roughly 5% a year so that with a ~5% increase in dividends the total amount payed out has stayed roughly flat. (20.63B to 17.1B shares in 3 years)

      https://www.macrotrends.net/stocks/charts/AAPL/apple/shares-outstanding

      3
      April 19, 2021
  4. David Emery said:
    > but how does he know?

    Rectal sampling? 🙂 A much more credible statement would have been along the lines of “If Apple follows previous practice, then …”

    4
    April 19, 2021
  5. Dan Scropos said:
    The buyback almost certainly cannot be $50 billion. That’s not enough to get them through next year with buybacks, especially with cash flow increasing. $75 billion is far more likely.

    4
    April 19, 2021
  6. I take dividends from my Pension fund but automatically reinvest all other pre-tax dividends. The new shares in those accounts are a pleasant surprise. My mother insisted I ‘let our broker buy more shares with all dividends,’ now 87, she still does!

    2
    April 19, 2021
  7. Daniel Epstein said:
    I am usually too lazy to do the math as to the exact increase of the dividend and the size of the buyback to be announced. And it also usually adds up to a whole number for the 4 quarterly payments. One of the questions is whether the dividend payout keeps pace with the share decrease from buybacks. Apple dividend payouts costs have not seemingly grown as greatly over time compared to share buybacks. If they ever get close to cash neutrality and slow buybacks they may increase the dividend more quickly but I doubt it will ever go over 25% of earnings unless something unexpected happens. That being said a 10% increase on 82 cents a year would be 8.2 cents. This is just under 25% of expected earnings of 3.70 for the year. Guessing Apple will raise to 90 cents. They could raise it a bit more if they want to actually get to 25% of earnings. 94 cents would not surprise me either. If they don’t raise it very much it probably means they think buybacks are less burdensome than dividend payouts.

    3
    April 19, 2021
  8. Ralph McDarmont said:
    The dividend is insignificant to me. Just run a good company with innovative products and I will gladly coast along with share price growth. Save that dividend cash for the next big thing.

    4
    April 19, 2021
  9. T R said:
    “If they don’t raise it very much it probably means they think buybacks are less burdensome than dividend payouts.”

    Bingo. Raising the buybacks authorization a lot, and the dividend modestly, would/will be a good “tell” that they’re confident that the stock is still undervalued.

    3
    April 19, 2021
  10. Jerry Doyle said:
    I believe the old Steve Jobs-ism conservatism on payouts to shareholders still exists, inculcated deeply in the mindset of Apple’s DNA. Apple’s senior executives & governing board continue to view Apple, the company, more a “growth” stock than a value stock paying dividends. It is that mindset that focuses on growing the stock price knowing that the company has a pipeline of unique & innovative products to come coupled with a large buyback program that results in shareholders already reaping the equivalent of a premium growth stock. Growth companies normally don’t pay dividends or if they do, very modest dividends.

    2
    April 19, 2021
  11. Patrick Beyrouti said:
    To write that they will increase buybacks is non sense : they already said numerous times that eventually they will reach a cash neutral position . So buyback will continue as long as …..
    The real issue is the Q2 earnings , I dont understand estimates , APPLE Q2 earnings are always seasonally lower , but last year they were exceptionally terrible because of China lock down … I do not at all expect that again and hence a strong BEAT will happen and therefore all other good news will follow .

    0
    April 20, 2021
  12. Jonny T said:
    5 to 10%, or 50% increased dividend? I say 25%…

    0
    April 20, 2021
  13. T R said:
    I’m hoping for no more than 6%.
    Dividend increases:
    2012: $0.38 per share (Initiated div)
    2013: $0.44 (15% increase) 0.15
    2014: $0.47 (8% increase) 0.08
    2015: $0.52 (11% increase) 0.12
    2016: $0.57 (10% increase) 0.10
    2017: $0.63 (11% increase) 0.11
    2018: $0.73 (16% increase) 0.16
    2019 (5% increase) 0.05
    2020 (6% increase $0.82) 0.06
    average 0.10

    1
    April 20, 2021

Leave a Reply