Don't Bank on an Apple (AAPL) Special Dividend

December 3, 2012 11:34 AM EST
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With all the special dividend craziness ahead of the fiscal cliff and likely increased tax rate, there has been tons of speculation that Apple (NASDAQ: AAPL) will be next to issue a big fat dividend check to investors. However, one analyst said it's not going to happen.

Apple has about $121 billion in cash, which is expected to grow to $156 billion in FY13, according to Deutsche Bank analyst Chris Whitmore. This gives them ample capacity to pay a large special dividend and still grow net cash per share while buying
back stock, he said.

Arguments in favor of a special dividend are numerous: 1) the prospect of an increasing tax rate on dividends (rate would increase from 15% to ~40% in January if Bush era tax cuts lapse), 2) recent moves by AAPL to return cash to share holders, and 3) a large cash balance that is receiving relatively low rates of return and the associated inefficient capital structure.

Despite all this, Whitmore thinks the probability of a special dividend at Apple is low. He said the company is more focused on building a track record of predictable dividend growth - versus a one time lump payment - and share buybacks.

"Although a special dividend would be a big short-term positive development, it appears unlikely at this point in time as special dividends do not tend to have a lasting benefit to shareholders," he comments.

Irrespective of Apple's near term dividend policy, the analyst sees shares of Apple as attractive at 8x CY13 EV/FCF. He reiterated his Buy rating and $800 price target.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $585.28 yesterday.

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