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Apple said it wants to become 'cash neutral' — which could be a huge boost for earnings

Anita Balakrishnan

Apple's earnings could pop as much as 30 percent higher than current estimates — if the company buys back 10 percent of its shares each year over the next several years.

That's one of several likely scenarios for America's most valuable public company as it aims to fulfill its previously mentioned plan of becoming " cash neutral ," according to UBS. Apple is likely to spend almost all of its cash on share buybacks, and potentially increased dividend yields, by 2023, UBS analyst Steven Milunovich wrote in a Wednesday research note.

Apple's shareholder meeting this week rekindled speculation about how the tech giant will spend its $285.1 billion cash hoard, which can now be deployed in the U.S. at a cheaper tax rate.

When prodded on the topic, executives told investors that an update would be coming in April, and that the board was committed to an annual dividend. But they didn't go into detail, other than noting that CEO Tim Cook is "not really a fan" of special one-time payouts.

Apple's chief financial officer, Luca Maestri, did say earlier this month that the company was "targeting to become approximately net cash netural over time."

Milunovich explains a couple of different ways Apple could do that.

One option is for the company to repurchase 10 percent of its shares each year until 2021, boosting earnings per share 30 percent from estimates. Another scenario is for Apple to spend between $30 billion and $60 billion per year on share repurchases and combine that with a dividend yield of 3 percent until 2023 — which he says is what Wall Street is currently leaning toward.

Some investors have speculated that Apple might buy a big U.S. company with its new free-flowing capital, but Milunovich said: "Don't hold your breath."

"On the M&A front we expect Apple to continue its strategy of filling technology or personnel gaps with small tuck-in acquisitions. Transformational M&A would result in a collision of different cultures and priorities, which Apple has thus far avoided," he wrote.

Dividend increases are not always a great sign for technology companies: "A juicy yield can mask a company's shaky fundamentals, at least temporarily," as one Barron's reporter put it. Reuters points to Hewlett-Packard in the early 2000s as an example of buybacks that "cannibalize innovation" and "slow growth."

But in this case, Milunovich said he doesn't see the capital structure weighing on Apple's valuation — he said investors are still watching Apple's ability to grow and turn capital into profits.

— CNBC's Paayal Zaveri and Josh Lipton contributed to this report.