With the fiscal cliff impending and, with it, the possibility of higher dividend taxes looming large, Apple (NASDAQ:AAPL) may decide to share some more of its cash holdings with its shareholders. Financial adviser Randy Warren told Market Watch that he won’t be surprised to see Apple and Microsoft (NASDAQ:MSFT) join the trend most recently displayed by Costco Wholesale (NASDAQ:COST), which has decided to pay a special divided of $7 a share at a total cost of $3 billion to avoid the higher taxes.
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Costco’s stock rose more than 5 percent after it announced the special dividend on Wednesday, joining Tyson Foods (NYSE:TSN) and Wynn Resorts (NASDAQ:WYNN). Dividend taxes are set to rise next year along with the arrival of the fiscal cliff, leaving companies that have big cash hoards face the possibility of investor unrest.
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Apple, which has a cash pile of around $120 billion, will be among the firms that are closely watched. “When’s a good time for them to pay out a big dividend? When they’re not gonna be overly taxed on it,” Warren, who who manages about $75 million, told Market Watch. “We expect to see more of these special dividends unless the federal government can come up with a Kumbaya moment and solve the fiscal cliff in the next couple of weeks, but that doesn’t seem likely,” Warren said.
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Apple’s stock, which has seen some unexpected selloffs over the past two months, will benefit from such an announcement. And while Apple is one of the higher dividend payers in the country, its payments are at a much lower rate compared to other big tech firms at only 20 percent of projected earnings. Microsoft pays 32 percent of projected earnings and Cisco (NASDAQ:CSCO) pays 29 percent. Apple’s first payment of $2.65 a share, made on August 16, worked out to annualized yields of just under 1.7 percent calculated at the share price at the time. Raised, or special, dividends will only attract more investors.
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