Apple Inc. (NASDAQ: AAPL) has enjoyed massive growth over the last decade.  It has overcome a near-death experience and transformed itself into the second largest company by market capitalization.  Now that its shares have stalled so far in 2011 and now that it has some $65 billion at its disposal (total of cash, and short-term and long-term securities), the calls have started to grow for the company to pay a dividend.  Those calls are falling on deaf ears and there is no sign that Apple will institute a payout for shareholders anytime soon.

When it comes to initiating dividends, this is an area that suddenly combines trends for growth investors and value investors alike.  It also brings up activist investing, corporate governance, accounting, and tax issues that had not previously been there.

There are lessons to be learned from Apple’s history and from Apple’s technology rivals and peers.  24/7 Wall St. has evaluated the top ten reasons that Apple will not pay a dividend any time in the near future.

1.  First and foremost… The company is consistent in saying it has no plans for a payout.   The point is made clear in Its 2010 annual report in a section titled “Dividends”… “The Company did not declare or pay cash dividends in either 2010 or 2009. The Company anticipates that for the foreseeable future it will retain any earnings for use in the operation of its business.” We could argue for just how long “the foreseeable future” is, but the company has said the same thing for years.

2.  Dividend history does not matter…. Apple actually used to pay a dividend long ago.  It was in the early 1990s and then it stopped when the world was being consumed by PC buyers buying Windows for the first time ever.  Back then, Apple was just a niche company with a different shareholder base and a different customer base.

3.  Two maturing moves at once might not appear to be the best ‘growth’ move…  Apple is reportedly planning a new corporate spaceship-like headquarters.  The costs of the move and even of building the facility will not eat up anywhere close to all of Apple’s liquidity.  Building a mega-office campus with a unique design that houses thousands of workers on more than 100 acres could be argued as the peak of growth even if Steve Jobs said Apple is “growing like a weed.”  Perhaps writing a big check to shareholders AND building a massive campus for workers might send the wrong symbol to the investor community.

4.  Direct rival history…  Microsoft Corporation (NASDAQ: MSFT) is a prime example that Apple wants to avoid.  Microsoft has paid both special dividends and had regular dividends.  This has failed to generate any extra buzz around Microsoft stock.  The attitude taken when Bill Gates returned a huge slug of cash to shareholders via a special dividend was that Microsoft’s best growth days were behind it.  This was when the argument came up that “Microsoft is becoming a utility rather than the greatest tech growth story of its time.”

5.  Current technology dividend trend… Cisco Systems, Inc. (NASDAQ: CSCO) has become another “avoid” stance for Apple to use as a dividend holdout even if these two companies have little to do with each other.  Cisco refused to pay a dividend for years and years and only paid one after the demands could no longer be ignored.  How has it worked out for that company?  Cisco is in trouble and reorganizing its efforts but Steve Jobs does not want to do this.  Do investors care about the 1.5% yield at Cisco?  All you need to do is to look at its stock performance to decide that answer.  In the Cisco lesson, Apple hopefully knows better than to spend billions and billions simply to buy back stock.

6.  Strategic cash needs… The company has said it will use its cash strategically.  Strategic could be for R&D, it could be for building new partnerships, and it could even be for giant acquisitions or a slew of strategic acquisitions.  Imagining that Apple would make a large acquisition goes against its own history, but in today’s world any deal within reason would be possible for Apple.  Use historic rumors and speculative targets for these.  Apple has enough liquidity that it acquire Netflix, Inc. (NASDAQ: NFLX), SIRIUS XM Radio Inc. (NASDAQ: SIRI), Akamai Technologies Inc. (NASDAQ: AKAM) and TiVo Inc. (NASDAQ: TIVO) all at once and not even put a real dent in its cash arsenal.  There had been previous speculation on each of these as possible targets once upon a time, but those days are in the past.

7.  Flexibility and reserves… The company has said it wants to hold a large cash balance for flexibility and reserves.  What level “large” really happens to be depends upon whom you ask, but Steve Jobs is likely to accumulate cash as he has signaled that he wants to have a huge arsenal for reserves.  If you add up the cash and the short-term and long-term securities we are effectively above $65 billion in assets.

8.  A simple alternative, via a stock split… Apple could address some of the concerns of investors who want a dividend merely by splitting its stock.  Technically a split does nothing other than acting as a mechanism “to allow the little guy in” to shares.  The company split its stock 2-for-1 back in 2005 and many investors would suddenly find themselves more than happy if Apple split its stock.

9.  Steve Jobs is coming back into the fold by the looks of it…  Steve Jobs has been on sick leave for some time but this last week he returned to head up the developers conference and he also apparently is the one who made the pitch to local government for his new giant headquarters project.  To say that Jobs is an example of a strong CEO who can get away with whatever he wants would be perhaps the understatement of the year.  If Jobs is there, no one can really tell him what to do.  If something happens and Steve Jobs is suddenly out permanently, then management at the time may be able to decide upon a dividend (one-time or ongoing) to keep shareholders from heading to the exit.

10.  Lastly, share price matters…  Apple has been an amazing stock.  The fact that Apple’s stock has stalled in 2011 does not matter when it comes to ‘owing shareholders’ even more.  Management’s objective in public corporations is supposed to be to generate share performance through time rather than creating short-term moves evaluated each quarter or two.  Apple shares have risen almost tenfold since June 2005 and shares are up over 30-times since June of 2003.  All this is at a time when the market has been a bust for long-term “buy and hold” investors.  History is on Apple’s side even if the stock remains stagnant for some time.  It would likely take a significant drop in the shares and the stagnation would likely have to continue for quite some time before the company has to start listening to calls for a dividend.

Keep in mind that this observation is coming from someone who actually thinks that Apple would be better served by declaring a large one-time dividend, committing to an ongoing dividend policy, and also by splitting its stock to where shares are well under $100.00.

Our take on the matter is that Apple does not want to act like an old-world company.  It does not want to be a Dow Jones Industrial Average component.  How well has being added to the DJIA done for companies?  It would even be easy to argue that Apple would want to take legal action to prevent being added to the DJIA.  Maybe Steve Jobs wants to be the first man to accumulate $100 billion in raw cash from technology sales.

Apple’s shares are currently just above $330.00 and its 52-week trading range is $199.25 to $364.90.  Thomson Reuters has a current price target objective of nearly $450.00 for the stock.

Apple will probably pay a dividend one day out in the distant future.  Just don’t hold your breath waiting for it.

JON C. OGG

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