Apple Inc. (NASDAQ:AAPL) will likely increase its dividend to 6 percent and release a low-cost iPhone, according to one Morgan Stanley analyst.
Analysts have been speculating about a low-cost iPhone for months, and on Thursday David Einhorn recommended against Apple raising its dividend.
Morgan Stanley (NYSE:MS) analyst Katy Huberty issued a note to investors today, saying that she met with Apple Inc. (NASDAQ:AAPL) CFO Peter Oppenheimer on Thursday.
Oppenheimer is the one who initially rejected Einhorn’s recommendation to offer perpetual preferred stock rather than increase the company’s dividend.
According to Huberty’s note, she believes after her meeting with Oppenheimer that Apple Inc. (NASDAQ:AAPL) will more than double its current dividend of 2.3 percent. She believes that the tech giant would match the S&P IT sector’s free cash flow average payout, which is 68 percent, by returning 28 billion to investors in the current fiscal year. She said that would imply a 6 percent dividend.
Huberty’s note also addressed the question of a low-cost iPhone or iPhone Mini, as some analysts have been calling it. She said that innovation continues to be an essential part of Apple’s business plan, so she believes the tech giant will expand its iPhone product line as well as introduce some new services which will not only be catalysts for device sales but also “unlock significant value.
Currently the iPhone 4 is Apple’s least expensive handset, and she said sales on the device continued to be strong through the December quarter. Therefore she believes that even with a 40 percent gross profit margin and a cannibalization rate of one-third, a low-cost iPhone would push Apple Inc. (NASDAQ:AAPL)’s revenue and profits higher.
Shares of Apple Inc. (NASDAQ:AAPL) topped $450 per share briefly this morning after the markets opened before dropping back below that mark again.
