Bad news for hedge funder David Einhorn: Apple is likely to jack its dividend, says Morgan Stanley analyst Katy Huberty.

Huberty met with Apple's CFO. After the meeting she wrote that Apple will "likely increase cash return to shareholders." She writes:

Apple could return more cash to shareholders given its cash balance is $40B higher vs. March 2012. Our analysis suggests Apple can match the S&P IT sector’s average FCF payout of 68% if it returns $28B in FY13, implying a 6% total yield. High mix of international cash limited flexibility in the past but raising low-interest debt can help address this issue, in our view.

Apple's currently has a 2.3 percent dividend yield, so this would be a big bump.

Einhorn had a big presentation yesterday about why Apple shouldn't just do a dividend bump. He thinks it wouldn't help Apple's PE.

He wants to see Apple do preferred shares that deliver a dividend in perpetuity. His plan would have a 4 percent annual yield.