Apple Buyback Boost? The Logic Behind More Shareholder-Friendly Policies Next Month

Apple Inc. AAPL shares are about flat on Monday morning, hours after RBC analyst Amit Daryanani said his team believes the company could increase its buyback by $50 billion and dividend by 10 to 15 percent when it reports earnings next month.

"We think AAPL sustains its upside bias especially as we get close to AAPL updating its capital allocation program (April EPS Call)," the analyst wrote. Based on Apple's $24 billion in free cash flow generation in the first quarter and projected $69 billion in full-year cash, a $50 billion annual buyback would be in line with historical percentages.

Daryanani provided the following historical schedule of past capital allocation announcements:

• "Apr-2013: Apple increased share repurchase authorization by $50B from $10B to $60B, and raised quarterly dividend by 15% to $3.05/share from $2.65/share (total $11B annually)."
• "Apr-2014: Apple increased share repurchase authorization by $30B from $60B to $90B, and raised quarterly dividend by 8% to $3.29/share from $3.05/share (total $11B annually)."
• "Apr-2015: Apple increased share repurchase authorization by $50B from $90B to $140B, and raised quarterly dividend by 11% to $0.52/share from $0.47/share (total $11B annually)."

Apple's present dividend yield is near 2 percent with a payout ratio of 17 percent. "We think should AAPL be able to increase this by 10%+ (likely) it would imply a dividend payment of $2.29 per share (yield = 2.2%)," the analyst added.

Assuming Apple is able to receive a valuation of what its large-cap tech peers average (13.5x Enterprise value to LTM FCF), the stock should trade about 28 percent higher than it currently does, he concluded.

Daryanani's price target puts Apple's value at $130 per share. The stock is near $105 on Monday afternoon.