“Multiple articles get written that the company should increase its dividend by a substantial amount since it earns so much and has a lot in the bank. However, what almost all the writers don’t mention or realize is that the company can only use US cash or raise debt to pay dividends or buy back stock,” Jones writes. “I believe that it makes sense to use debt to buy back shares but not increase the dividend by a large amount.”
“If Apple were to increase its payout by 50% to match Cisco’s and IBM’s, it would spend over $18 billion in cash every year and have to issue $6 billion in debt every year to cover it,” Jones writes. “It would put the company on the dividend treadmill to issue debt every year to cover its dividend, and since I believe management and the Board are taking a multi-year if not multi-decade outlook, this is not the path they want to go down unless it can be avoided. That is why I believe Apple will increase its dividend by about 10% a year so as to be on a measured approach and garner investors that value a rising dividend over multiple years if not decades.”
Much more in the full article here.
MacDailyNews Take: Of course, as Jones mentions in his full article, a tax repatriation holiday or a revision of the onerous U.S. corporate tax structure, could change things significantly.
Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth. – Apple CEO Tim Cook, May 21, 2013