Apple: BMO Gauges Stock Performance Post-iPad , Dividend

Apple (AAPL) shares have less of a chance of appreciating after the expected introduction this Wednesday of the next iPad, writes Keith Bachman with BMO Capital Markets, who maintains an Outperform rating on the shares and a $590 price target.

Bachman, writes that his survey of Apple price appreciation up to, on the day of, and following a major product introduction shows that on average, Apple shares have run up 27% prior to the event, closed up 1% the day of the event, and risen 7% in the three months following.

Apple shares, however, were up 40% in the last three months through Friday.

And on average, the stock was up only 9% prior to the two previous iPad introductions. Following those two debuts, Apple shares went on to rise 13%, on average, the next three months.

From those stats, Bachman concludes Apple shares may consolidate recent gains post the iPad launch this week, code words for saying the stock may not see much appreciation after the introduction.

The stock is actually up $1.27, at $546.45, this morning.

He also warns that if the iPad is not capable of “long-term evolution” networking connections, or LTE, as it’s known, it would be something of a disappointment, as LTE was a big theme at last week’s Mobile World Congress trade show in Barcelona. He thinks the iPad will, indeed, feature LTE.

In the same report, Bachman examined U.S. and worldwide equity income fund holdings in Apple. He finds that if Apple were to offer a dividend, it could meaningfully expand its representation in those income funds:

Second, we take a look at equity income funds for both the US and international. For the US, we note that nearly a dozen of the largest equity income funds already own a small position in AAPL shares as of December 31, 2011. US and global funds have assets under management of approximately $400 billion. Therefore, if these income-oriented funds bought 5% positions, this would equate to approximately $20 billion in new money, or about 4% of AAPL�s current market cap. We believe a dividend would help move the stock higher by attracting new investors and also providing enhanced total return. If Apple offered a 2.5% yield, this would suggest about a $14/share annual dividend, or almost a $13 billion use of cash, versus our ~$45 billion projected FCF in FY2012. If Apple repurchased $14 billion worth of stock, this would add about $2.00/share to our FY2013 EPS estimate, or an increase of about 4%. We assume FY2013 as we are not clear on the timing of a potential buyback. Given Apple�s ample�cash balance and strong FCF, we believe that Apple should offer a dividend and buy back some amount of stock.