Edible Apple

As Apple’s hoard of cash continues its epic rise to the $100 billion level, the company’s stock price seems to be languishing in the upper $300 range. And while most companies would kill for Apple’s market cap – second only to Exxon – there’s no getting around the fact that Apple’s share price is abnormally low given its current earnings and prospects for future growth.

While some attribute this to an inherent anti-Apple bias in the markets, or perhaps yet another example of the buffoons on Wall St. being, well buffoons, some have recently taken to arguing that Apple needs to pay out a dividend to investors.

Now of course, many of the pro-dividend proponents simply want Apple to pay back its investors because it has an excess on cash on hand. And to that end, you might recall that Apple under Steve Jobs was always dividend-averse. During a 2010 shareholder meeting, for example, Jobs explained that Apple prefers to keep its cash hoard to itself so that it can make bold purchases when opportunities arise.

“We know if we need to acquire something – a piece of the puzzle to make something big and bold – we can write a check for it and not borrow a lot of money and put our whole company at risk,” Jobs explained. “The cash in the bank gives us tremendous security and flexibility.”

But another reason for Apple to pay out a dividend, some argue, is that Apple limits itself as a stock to the extent that a number of large investment funds are precluded from buying Apple shares precisely because the company doesn’t pay a dividend.

Tiernan Ray of Barrons wrote recently:

The other side of the coin, less well understood, is that value investors, who should be buying this stock night and day, are “underweight” Apple. Among the largest U.S. value funds, the stock is just 0.4% of assets, vastly smaller than the 2.5% average for all funds.

Apple has both exhausted its shareholder base among its natural fans, the growth guys, and also failed to charm the other folks in the room, the value guys.

And the value guys actually make up vastly more of the world’s assets under management.

The problem seems to be one that Apple shares with only a couple of other companies. It is huge, it is sitting on an enormous pile of cash, and it refuses to buy back shares or pay a dividend. That is an approach that irks value investors, Sacconaghi observes.

The single most important factoid in Sacconaghi’s note is the fact that Apple is one of only three of the top 25 companies in the Standard & Poor’s 500 Index, along with Google and Warren Buffett’s Berkshire Hathaway (BRKA), that don’t pay a dividend.

Now Google and Bershire Hathaway? Now that’s some solid company right there.

That said, an interesting report emerged on Monday claiming that Apple may issue a significant dividend sometime in early 2012.

In an interview on Bloomberg TV yesterday, Gamco Investors Inc. money manager Howard Ward said that Apple “could easily be a 3 percent dividend-yielding stock or even higher.”

Notably, you might remember that in Apple’s most recent earnings conference call, newly minted CEO Tim Cook explained that Apple wasn’t religiously tied to holding onto its cash hoard solely for the sake of holding onto it.