I'm indifferent about Apple (AAPL) instituting a regular dividend.
I realize that a big reason that the stock has run up to $500 from $400 in the past six weeks is the expectation of a dividend announcement on or before the shareholders' meeting at the end of February.
I understand the argument that $100 billion in cash is too much; Apple is not earning anything on it and, by paying a dividend, there's the chance that a new type of investor base (value investors) might buy into the stock.
Frankly, I don't believe much will happen if Apple announces a dividend. I expect the stock to start selling off for at least six weeks within a few days of a dividend announcement. The stock has simply run-up too much in anticipation of a dividend.
Will the action really attract a new investor base to Apple? I doubt it. If there's a reason to own the stock at higher levels than where it is now, people would have bought it.
Most people who argue that Apple should be paying a dividend didn't like the stock at $200, or $300, or $400, and now $500. They know nothing about Apple's underlying business or of its potential for the next few years. They simple think it's too expensive relative to its market cap.
These same critics like to point out that Microsoft (MSFT) went down after it reached a $500 billion market cap, as did Cisco (CSCO) and General Electric (GE). Never mind that it was back in the bubble days, when people were paying silly multiples.
It's unfathomable to these critics that a company could have generated $100 billion in cash. Therefore, it simply must be paid out because it's "inefficient."
And I love it when the critics complain that by holding the cash, Apple isn't treating its shareholders well. Really? Have they really been materially impaired by the past six weeks of stock returns? or one year? two years? five years? How about 10 years? Just go away.
My read of CEO Tim Cook's comments on the last earnings call is that Apple will start to pay a small dividend. It appears as though it will happen. My guess is that it will be small and Apple's cash hoard will continue to grow quickly.
To anyone who has ridden this recent rise in Apple shares over the past six weeks hoping for a dividend, enjoy it. But don't expect another six weeks like this after a dividend announcement. And don't expect Apple to change the way it has run its business over the past 15 years -- small acquisitions, end-user focus, and great products.
