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Apple Dividend: Examining the Possibilities

Stocks in this article: AAPL GOOG

NEW YORK ( TheStreet) -- The speculation about what Apple (AAPL) will do with the $137 billion cash hoard on its balance sheet is mounting ahead of the company's earnings later this month. One analyst thinks Apple could up the ante by as much as $20 billion over the next three years.

UBS analyst Steven Milunovich believes that Apple could raise its cash return to shareholders to at least $65 billion over the next three years, up from $45 billion. Doing so would not only alleviate some of the pressure Apple is facing from shareholders, such as David Einhorn, but would boost investor appetite for the stock as well. "The market appears to be underestimating the potential dividend increase, and a significant return of cash could boost the stock price by 10%," Milunovich wrote in his note. He rates shares "buy" with a $560 price target.

Apple CEO Tim Cook has previously mentioned that the technology giant is in "very, very active" discussions on what to do with its cash hoard.

In March 2012, Apple announced a combination of dividends and buybacks worth $45 billion to be paid out over three years.

The Cupertino, Calif.-based firm has faced slowing earnings growth as the smartphone market matures and competition from Samsung, Google (GOOG) and others intensifies. Last quarter, the iPhone accounted for $30.66 billion in revenue, or 56.2% of Apple's $54.5 billion in total sales, as the company sold 47.8 million of the smartphones.

Analysts polled by Thomson Reuters are looking for fiscal second-quarter earnings of $10.12 a share on $42.66 billion in revenue. That's down sharply from a year ago, when Apple earned $12.30 per share on $39.19 billion in sales.

Apple is set to report earnings after the close of trading April 23, and many expect to the iPhone maker to increase its dividend and buyback. It could even be a cushion for shareholders should Apple miss expectations.

Any increase in buybacks could help offset the slowing year-over-year earnings growth Apple is expected to see, as the company waits for new products, such as the oft-rumored iPhone 5S, to help spur earnings. "An additional $10bn in share repurchases or $20bn total over three years would be 5% accretive to our estimates, and a $2-5bn dividend increase would lift the stock's yield from 2.5% to 3.0%," Milunovich wrote in his note.

For the 2013 fiscal year, Milunovich expects Apple to earn $42.14 a share, and $49.30 a share in 2014.

Apple shares were lower in pre-market trading, off 0.59% to $427.25.

-- Written by Chris Ciaccia in New York

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