An Apple Dividend in 2012? Keep Praying

Apple investors should be some of the happiest shareholders on Wall Street. And
for the most part, they are. But when it comes to the question of dividends, the
gratitude vanishes. Year after year, Apple (NASDAQ: AAPL ) investors ask about a
dividend. Year after year, Apple declines to offer one, rewarding shareholders
instead with handsome returns in its stock value. Apple returned investors more
than 25% in 2011, a year when the rest of the market basically flat-lined. Now,
investors and analysts have gone from asking about a dividend to predicting that
Apple will pay one in 2012. An analyst from ISI Group went on CNBC to declare
that an Apple dividend " is going to happen ." Earlier, a fund manager at
Gamco Investors made a similar claim . Even IAC s (NASDAQ: IACI ) Barry Diller
disparaged the concept of growth companies not having to pay dividends as
"outdated and somewhat inane." Nevermind that Apple last paid out a dividend
17 years ago, when Michael Spindler was CEO. Or that Steve Jobs – who made
tens of millions of dollars a year from Disney (NYSE: DIS ) dividends – never
felt a need for one, preferring to have large piles of cash as a safeguard that
allowed Apple to take risks. Now that Jobs is no longer involved, investors are
cranking up their expectations that a dividend to come. After all, Apples cash
pile keeps growing – from $40 billion a year ago to $80 billion today. And
analysts figure free cash flow will keep adding $40 billion a year for the next
couple of years. And besides, Apples stock, valued at a moderate 15 times
earnings, could get a boost by the increased demand that a dividend would create
in the stock. Apples new CEO Tim Cook is clearly facing pressure to pay a
dividend. He mentioned in a recent conference call with analysts that hes "not
religious" about holding or not holding cash. Some read into his words a
softer stance on the dividend issue, but the language is as vague and
noncommittal as Jobss old comments on Apples cash. In time, Apple may capitulate
to investor demands, but that time isnt likely to come in 2012. Here are some
reasons why. In Silicon Valley, dividends are a sign youre over the hill. Theyre
what you pay to mollify investors who want to know why growth is slowing. But
Apples revenue is expected to rise 29% this year with earnings increasing by
25%. Microsoft (NASDAQ: MSFT ) pays dividends. Google (NASDAQ: GOOG ) doesnt.
And Apple doesnt want to be seen as losing face before its rivals. Apple is also
seen in the tech industry as the worlds largest startup. True, this
"startup" has a $388 billion market cap, but Apple is regarded as the prime
example of a tech giant that can still innovate like a scrappy newcomer.
Startups view cash the way Jobs did – as a cushion to protect you when risks
dont pay off. Handing it to investors signals to software developers everywhere
that you're losing your edge. In fact, for all of Silicon Valleys materialism,
it also has a strong current of idealism that Apple embodied under Jobs.
Cook's Apple is keen on preserving the ideals of its longtime CEO, so a
dividend so soon after Jobs's death would look like a step away from those
ideals. In addition, most of Apples cash is overseas. Like Google and Cisco
(NASDAQ:CSCO), Apple invests much of its profits in countries with lower tax
rates. To pay a dividend, Apple would need to repatriate cash and also pay a
U.S. corporate tax rate closer to 35%. If the U.S. grants a tax holiday, Apple
may give in and pay a dividend. But a tax holiday looks unlikely in 2012. The
calls for an Apple dividend arent likely to go away, and in fact will increase
as the company's cash pile grows. But the simple reality is that tech
investors need an Apple dividend much more than Apple needs to pay one. The kind
of reliable growth that Apple delivers regularly is hard to come by, even in the
tech sector. Few investors are foolish enough to punish Apple by selling their
shares. And that leaves complaining as their only option.