AAPL stock may get a boost as RBC Capital predicts the “iPhone” and “iPad” maker to hike its dividend and buyback plan when it reports second-quarter results on April 25.
Analyst Amit Daryanani told clients that Apple Inc. (NASDAQ:AAPL) could comfortably increase its dividend by 10%–15%. With the AAPL stock currently yielding about two percent and a payout ratio of roughly 17%, a 10%+ hike would imply a dividend payment of $2.29 a share, or a yield of 2.2%.
With the benchmark 10-year U.S. Treasuries trading around 1.9% currently, an increase in Apple’s dividend would make AAPL stock a better income investment for risk-averse investors.
The company has lifted its dividend in each of the past three years, raising it by an average of 11%. (Source: “Apple Inc equipped for big dividend and buyback increase,” The Financial Post, March 28, 2016.)
Daryanani, who has an “Outperform” rating on the AAPL stock and a $130.00 price target, expects Apple Inc. to increase its buyback authorization by $40.0 billion to $50.0 billion, compared to last year’s buybacks of $35.0 billion.
The share repurchases would allow the Cupertino, California-based company, which has $216 billion in net cash, to push earnings-per-share (EPS) growth up to approximately four percent in fiscal 2016 and beyond.
“We think AAPL sustains its upside bias especially as we get close to Apple updating its capital allocation program (April EPS Call),” the analyst wrote. Based on Apple’s $24.0 billion in free cash flow generation in the first quarter and projected $69.0 billion in full-year cash, a $50.0-billion annual buyback would be in line with historical percentages. (Source: “Daryanani: Apple Will Hike Dividend, Up Buyback By $50 Billion In April,” Benzinga, March 28, 2016.)
AAPL stock advanced to as high as $106.19 on Monday from Thursday’s closing of $105.67, but fell to as low as $105.22 later in the day. AAPL has risen 0.4% since the beginning of the year through the close on March 24, compared to a 0.5% gain in the Dow Jones Industrial Average.