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Einhorn's Apple Argument Supported by Hidden Stock Gain

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The fact that Apple (NASDAQ:AAPL) has returned gains to shareholders in the past year supports an argument made by Greenlight Capital Management's David Einhorn that the company should give more of its cash to shareholders.

Before the stock market opened Thursday, Apple's shares had fallen in the past 12 months. Still, the company was able to provide investors with a positive return, albeit one that significantly underperforms the S&P 500's (INDEXSP:.INX) near 12% gain.

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The key is Apple's $2.65-per-share dividend that the Cupertino, Calif.-based company instituted in March 2012. Apple forecasts the program will return $45 billion in cash to investors over a three-year period.

Apple's current dividend has an appeal to investors, even amid the company's poor share performance in the past year and cries by the likes of Einhorn for bigger payouts.

In fact, the three quarterly dividends of $2.65 per share paid out to investors represent the company's only return in the past year. Apple paid out a dividend Thursday and will go ex-dividend until the company's fiscal second quarter.

Focusing on the almost $8 per share in dividends that Apple has paid out in the past three quarters is a shortsighted way of looking at the company, given its success in developing blockbuster products and near-record earnings.

Nevertheless, Apple's dividend-centric total return indicates the company may be entering new territory when it comes to thinking about returning cash to investors as a way to keep them invested in the stock.

Currently, Apple faces increasing uncertainty on the direction of its profit margins, as Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and others compete against the company's major breadwinners, the iPhone and iPad.

Meanwhile, billions in telecom carrier iPhone subsidies given by Verizon (NYSE:VZ) and AT&T (NYSE:T) may be at risk, according to some industry analysts.

In spite of those threats, Apple is poised to post awe-inspiring earnings in coming quarters as iPhone 5 and iPad Mini sales ramp up. As such, hedge funders like Einhorn of Greenlight Capital Management feel the company's single-digit forward earnings multiple represent an obvious value, in a tech sector marked by the sky-high valuations of Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Facebook (NASDAQ:FB).

Those selling shares in the company in recent months appear to be concerned about Apple's future products, given reports of moderate tweaks to its existing set of smartphones and tablets, and a vague push into the streaming-media business.

It is Apple's dividend policy that could be a ballast for investors as the company's existing products mature and the public awaits a new gadget that redefines the consumer electronics market.

Apple's one-year share performance -- or lack thereof -- should signal to Chief Executive Tim Cook that new thinking is still needed when it comes to the company's dividend policy after instituting a shareholder payout in 2012.

On Thursday, Einhorn appealed to Apple investors to vote for a provision in the company's annual proxy that would retain its ability to pay a preferred stock dividend. In May, Einhorn said Apple's cash, which now stands at $137.1 billion, or $145 per share, could be put toward a perpetual preferred stock dividend of between 4% to 6%.

"Over the past several months, we have had an ongoing dialogue with Apple regarding one option to do so, namely the creation of a new security, a perpetual preferred stock that would be distributed at no cost to Apple's existing shareholders, and would provide an attractive, sustainable dividend while preserving Apple's financial resources to pursue its business strategy," Einhorn said in a letter to investors.

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