Updated from 12:18 p.m. EST to provide comments from J.P. Morgan in the ninth and tenth paragraphs.
NEW YORK (
(AAPL - Get Report)
announce a share buyback and dividend
on Monday will push shares to new heights, say analysts.
Although a dividend was largely expected, the Cupertino, Calif.-based company also announced a $10 billion share-repurchase program before market open. Apple said it expects to spend $45 billion over the next three years in dividends and buybacks.
FBN Securities analyst Shebly Seyrafi raised his price target to $760 from $730, on the basis of Apple's expanding investor base. "These actions will expand the pool of investment funds that can invest in the name, so are positive for the stock. The $10B stock repurchase plan, over three years, seems a bit low for now. However, we believe that it is an initial step and it could expand substantially in the future," Serafyi wrote in his research note. He rates Apple shares "outperform."
Others analysts added that the dividend yield was better than Wall Street was expecting. Piper Jaffray analyst Gene Munster noted that "the Street was expecting around 1.5%." At Friday's closing price, Apple's dividend yield would be 1.8%.
Munster said that Apple would be paying around $10 billion in dividends per year at the current rate, but would be adding net cash to their U.S. cash holdings. Apple intends to pay for the buyback and dividend using cash based in the U.S. to avoid tax consequences.
"We estimate that Apple will generate about $70 billion in operating cash flow in FY13, 40% of which we estimate will be from the US," Munster wrote in his research report. Excluding the dividend/buyback, Apple should still generate between $11 billion - $13 billion in US cash in FY13." He rates Apple "overweight" with a $718 price target.
Apple CEO Tim Cook said that, despite the massive investments the company has made in R&D and infrastructure, Apple can also initiate a dividend and buyback. "These decisions will not close any doors for us. This will broaden Apple's investor base by attracting more investors who do not currently hold Apple's stock," Cook said on the conference call. Apple also noted that the company will review its dividend and repurchase plans periodically.