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Vocal Apple investors may be getting what they want: higher dividend, lower-priced iPhone

David Einhorn isn’t the only Applel(s aapl) investor who thinks Apple is doing it wrong. As its stock activity has shown over the past several months, shareholders are worried Apple is losing its way, isn’t innovating enough to compete with challengers like Samsung and isn’t being thoughtful enough about its huge cash pile. And now after plenty of complaining about this, there are signs Apple’s most vocal investors might actually get their way.

One of the top Wall Street analysts covering Apple, Morgan Stanley’s Katy Huberty, had a meeting with Apple CFO Peter Oppenheimer on Thursday. And as communicated in a note to her clients afterward, she got the impression Apple is going to make an iPhone that could better appeal to the lower end of the mobile market, and double the existing dividend it’s already offering in an attempt to return some of its $137 billion in cash to shareholders.

On an iPhone mini (via AppleInsider):

That’s why she expects Apple to expand the iPhone lineup, and also to introduce new services that can “unlock significant value” and drive device sales.

She noted that demand for the iPhone 4, Apple’s current low-end handset offering, was surprisingly strong during the December quarter. With a gross margin of 40 percent and a one-third cannibalization rate, she believes a so-called “iPhone mini” would drive incremental revenue and gross profit.

Cook said at an investor conference last week that Apple doesn’t try to hit a particular price point with its products. Referencing the practice of discounting older models, he said the company is “making moves to or have made moves to make things more affordable” when it comes to the iPhone. It’s not really a confirmation they’re working on a lower-cost iPhone, but it’s not a denial either. And there’s no indication of when such a device could arrive.

On giving investors more money via a larger dividend (via Fortune):

“Our analysis,” [Huberty] writes, “suggests Apple can match the S&P IT sector’s average FCF [free cash flow] payout of 68% if it returns $28B in FY13, implying a 6% total yield. High mix of international cash limited flexibility in the past but raising low-interest debt can help address this issue, in our view.”

Currently Apple offers a 2.3 percent dividend, or $2.65 per share, per quarter. But it’s clearly going to have to do something to fend off the attack from Einhorn — and his unconventional proposal for a class of stock that pays a permanent dividend — and other vocal campaigns for some of that cash. Cook has promised Apple is in “very active discussions” over what to do with its cash. Its annual shareholder meeting is coming up next week, and it seems not unlikely at all that an increase in the dividend would mollify most investors and perhaps give the stock a needed bump upward.

4 Responses to “Vocal Apple investors may be getting what they want: higher dividend, lower-priced iPhone”

  1. The iPhone costs are premised on its primary US market, where the carriers pay Apple about $450 per unit out of their own pockets and obviously profits. Carriers are tired of this subsidized model and are slowly replacing it. Wonder why? Once the user must pay full price in the US, it’s much more likely Apple will put out a lower cost phone, concentric with the iPhone and iOS ecosystem, but with reduced feature and materials spex. But why not soak the carriers as long as possible? Hate your carrier? Buy an iPhone.

  2. Karthik Kumar

    Yet another case of short-sighted and uninformed shareholders wanting a quick buck at the potential cost of brand equity dilution and long term loss.. Every Apple fan (atleast in this post i won’t call them iSheep) has consistently harped about Apple’s “high end” construction and materials to justify it’s higher end prices and therefore sustain Apple’s own margins, whilst also creating the Halo around Apple’s products as “for the classes” while Samsung and other Android vendors were “for the masses”. Take away those, and Apple stock would in the medium term fall further. Plus once people get used to low prices, they won’t pay higher prices if Apple brings out a “signature” product down the road as well. Take lessons from Microsoft. People got so used to $499 netbooks, that now they’re unwilling to dole out more for the Surface or Surface Pro.

  3. there are two ways apple could lower the cost of iphones;

    1. lower the overall quality by using plastics, etc. instead of metal and glass giving the device an overall cheaper feeling.

    2. lower the specs with a slower processor, etc.

    the 1st would likely be rejected by consumers as ‘too cheap’ the second option may actually hurt sales of higher ends models since most consumer really do not care about specs that much and/or would never notice the difference, and the newness may actually sway people who would not mind spending more but want the newest device. the best option would likely be to just keep the older model around perhaps lower the price a bit more.