Apple's annual shareholders meeting is scheduled for next week and it's already generating a lot of press thanks to Greenlight's David Einhorn who is suing Apple in order to block a proposal that is due to be voted on in at the shareholder meeting.
Einhorn says that if shareholders vote for Proposal 2 Apple will be never be able to issue preferred stock, a scheme he is pitching for Apple to adopt. EInhorn believes Apple should return more of their $137 billion in the bank to investors in the form of preferred stock that will pay a 4% dividend to those who own it.
Given the interest in whether Apple might direct some the huge stockpile of cash back to investors, it is expected that Apple will use the shareholder meeting to provide an update on its plans for capital allocation. The company may announce an increase to its current buyback plan, and it is likely that shareholders will hear an update on how much the company has spent so far on share buybacks.
Apple announced in March 2012 that it would buy back $10 billion in stock over three years. Currently Apple is paying a $10.60 per year dividend with a yield of 2.3%. This compares favourably with the S&P 500 where the average is 2.1%. Intel pays the most at 4.3%, notes Forbes.
The company had already spent $1.95 billion by December 2012, so "if it were to maintain that run-rate it would use up the $10 billion in just over five quarters," notes Forbes.
The Forbes report looks into the likelihood of Apple increasing the dividend payment or increasing its Stock Buyback.
One-time Apple dividend
Forbes suggests that it is unlikely that Apple will pay a large one-time dividend. "If the company had wanted to do that it would have done it in 2012 when tax rates were lower," writes Chuck Jones. Instead he expects Apple to increase the dividend at a "measured pace".
As for a share buyback: "Apple would have to buyback 95 million shares at a cost of about $50 billion assuming an average cost of $525 per share due to the market reaction," suggests the report, which, it says would be "a stretch", and that's assuming it would not have to "bring back overseas cash and pay up to 35% in taxes on it."
Einhorn's Preferred Stock scenario
Forbes thinks it is unlikely that Apple will embark on "financial engineering" such as what David Einhorn is proposing with a 4% preferred stock.
How much Apple has in the bank
Forbes makes an interesting point about the money Apple has in the bank. "It has not been that long that Apple has had such a huge stockpile of cash and investments", writes Jones, noting that the company’s cash position ten years ago was about $4.3 billion, and five years ago the company had $15.4 billion.