“Sure, many of the leaders from Silicon Valley won’t experience a massive tax break because of the recently passed tax bill, but they will have much cheaper access to their gargantuan overseas cash hoards,” Nicholas Ward writes for Seeking Alpha. “When looking at the balance sheet of the Silicon Valley habitants, we see that there are no shortages of companies with tens of billions of cash on hand.”
“The top five companies in the U.S. as far as cash reserves go are technology names. Oracle, Cisco, Alphabet, Microsoft, and Appleare the only U.S. companies with more than $50 billion stashed away. Alphabet is nearing the $100 billion threshold and Microsoft has achieved it, with its $133 billion on the books. But it’s Apple absolutely blowing away the competition with its reserves surpassing $260 billion (with the vast majority of those funds being currently held overseas),” Ward writes. “Just think about that for a second…$260b. That’s more money than many of the world’s developed nations have in reserve. People oftentimes express a desire that Apple moves into the original content space, right? Well, that’s so much money that Apple could buy Walt Disney and Netflix and still have ~$40 billion cash left, meaning it would still be 6th place.”
“Oftentimes I see individuals clamoring for increased dividends or even a special dividend in a special situation like this repatriation scenario. I know people harken back to Microsoft’s big special dividend after President Bush’s one-time repatriation back in 2004 when they look at Apple’s current situation, but it’s very difficult for me to justify such a capital allocation decision,” Ward writes. “If Apple were to pay a large special dividend, there would be large tax implications for shareholders. This tax would cut into the total cash received, making it a somewhat inefficient way to reward them… The company spends large sums of money on its own R&D and apparently doesn’t see the need to pay high M&A premiums elsewhere in the market. I’m fine with this as well.”
“So, at the end of the day,” Ward writes, “when it comes to investors who’re somehow upset about the fact that one of their companies is bringing home ~$250 billion with the likelihood returning the majority of those funds to shareholders, I’m going to take a page from Aaron Rodgers book and say, ‘“R-E-L-A-X…relax.'”
Read more in the full article here.
MacDailyNews Take: Yes, yes, yes to buybacks! (And healthy annual dividend bumps.)
When shares are undervalued, as Apple’s are, it makes sense for Apple to buy them back.
SEE ALSO:
Apple expected to repatriate $214 billion to the U.S.; expect increased buybacks and dividends, not big acquisitions – December 22, 2017
Congressional Republicans deliver epic overhaul of U.S. tax laws to President Donald Trump – December 20, 2017
Buybacks are a waste of money, Raise the dividend to .85 a share and keep the rest of the money for future projects.
Increase the likelihood of new AAPL buyers as they would be enticed by the smaller # of shareholders = greater value? It would seem “yes,” but institutional buyers would be the likely new buyers…oddly, if they aren’t already.
It means nothing in terms of new AAPL buyers. The only thing that brings in new buyers (all things being equal) is either an expectation that the market will pay a higher EPS multiple or that earnings will grow, or both. All the buyback does in mechanically increase the earnings per share (earnings divided by fewer # of shares). Buy backs are more a reward for current shareholders, including corporate managers with large amounts of company stock or options.
In Switzerland, where I am from, dividend are taxable. Capital gain isn’t. I’m much better of with buybacks that lead to a higher stock value.
Sadly in the UK, we’re taxed on both dividends and capital gains ( if over £11,300 ). The tax laws vary all over the world, so whatever Apple does will suit some people more than others.
In the US, both are taxable but capital gains are a lower rate and obviously only taxable when realized upon sale of shares.
The relationship between stock buybacks and increased share price is not that good compared to a direct payment in the form of a dividend.
Wrong – buybacks reduce the number of outstanding shares and as result lower the cost of dividend payouts. This has allowed Apple to increase the dividend rate without increase the overall cost.
The savings in dividend cost also cover the interest on the bonds issued to fund most of the buybacks.
My only issue is that Apple have $100B in debt. Financially that makes sense but personally I do not like Apple being on the hook for that amount.
The debt is issued at extremely low cost. I am also inclined to be debt averse, but as long as it is managed and kept balanced with cash reserves, it should not be a problem. The companies that get in trouble are the ones where all cash is stripped off the balance sheet and then have a problem if cash flow declines.
Remind me again, wasn’t this massive corporate tax break supposed to stimulate economy, by allowing companies to create new jobs? If all they do is buy back their shares, I don’t see how any of that money will end up creating jobs and going back into the economy.
Well, if you are a huge shareholder, perhaps the increased dividends you receive will translate into some tiny and unmeasurable bump in consumer spending.
Money put into circulation never inactive, unless it’s put under the mattress. Few do that and the wealthy, biz savvy, surely don’t. Sparkles notes one measure. Also, the same increase in div will give some people the needed confidence to finally pull the trigger on an business investment, (start-up, real estate, supplementing a current business) and these expenditures can/will cause an increase in money circulating via purchases, hiring and investments…including when banked. In each of those scenarios the process is duplicated/repeated, because $$ always “finds” the people that have done it before, or to those will/able to start the process. It’s very painful for our “hate-the-rich” AND “I’m entitled to some of the riches’ wealth” culture,” but it is them (the evil wealthy) who bring the most material and enduring positives to the economy. Last week, Jimmy and some other dude were spouting the non-sense that consumers’ purchasing is the real driver of the economy and I replied, you have to have a job in order to buy stuff. Where do you get the job? Not from a poor man, or anyone that doesn’t have, or isn’t willing to risk his money to create a reason to hire (creating a good/svc).
Predrag, how it is that you think the economy grows? Maybe you don’t like the idea of a select few (relatively), that have purchased stock (risk/committed their assets), to be receiving a div increase, or benefit from a buy back? Remember, what they receive in an increase div/buy back is proportional to their own stock/risk investment as a part owner in Apple. They’re not getting something for nothing. I guess that’s not fair in your mind for some reason, and or you deny the thought above about the nature of money?
BTW; I’m not saying consumers don’t play a part…it’s they’re not what comes first in starting and keeping things in motion. It’s those with money that are willing to risk it for a biz/investment venture. I’m also not commenting of the virtues of stock buy backs. I am a fan of increased dividends.
Actually, in our current system of fractional reserve banking, money growth (and correspondingly economic growth) happens via the creation of debt. This is why governments go into panic mode when people slow borrowing, and it is inevitably going to end badly at some point in time.
When properly managed and safety pursued, debt can be seen as leverage and the effects are positive for all. Be like the US govt and, many others, creating/throwing money at something is debt creation and has nothing to do with the positive effects of leveraged debt.
In the collective..its not tiny..
Every dollar u spend more ..goes towards creation of a job.. directly or indirectly and has a domino effect!
Its hoarding that does nothing.
“job creators” don’t hoard such a resource…they’re going to spend it and or create a scenario where it “increases.”
Whoever u are ? are u arguing against yourself or out just out of spite…
I dont believe u even comprehend what i wrote !
hypocrisy and spite pollute and distort the opinion/knowledge pool on this site… it’s pathetic.
and adding, not only does hoarding not do anything, but the business savvy don’t hoard their $$. An assertion in contrast to many that the wealthy hoard their $$…which is illogical, because you can’t become rich by doing so. No spite involved here.
My miss understanding.. apologies 🙏
Money that is returned to shareholders in dividends or share buybacks goes into the economy. I’m a shareholder. Either way, money in my pocket is “in the economy”.
If i may… money you spend is in the economy..
Money horded under a mattress contributes nothing to the economy.
Hoarded under a mattress, yes. But put into savings or stocks, no. That money isn’t just sitting there.
Totally agree… ….
I was refering to his statement ” mony in my pocket is the economy “
Ok all 54 of of u… keep the money in your pocket and dont spend it… dont invest it …It will for sure create an economic boom!
Some reactions on this site are absolutely laughable!
Ignorance …Spite and hypocrisy….
very left like….
Share buybacks are snake oil that for the most part benefit shareholders little, but Wall Street loves them for the fees.
How about a special dividend and pay it out in a lump sum, Tim?
Does Amazon do a lot of buybacks? Does Tesla do a lot of buybacks. I only want Apple to do the things that is going to give Apple the value of the FANG stocks. Buybacks don’t seem to be boosting Apple’s P/E very much. I would think Apple needs to be doing something with its money to boost the company’s growth potential so big investors see the stock as being worthwhile owning. How about Apple using that money to create some product that’s going to be praised by the overall tech industry as being innovative?
Buybacks aren’t helping Apple when it comes to Wall Street’s constant doubt of meeting iPhone sales expectations every single quarter. That sort of stuff has got to stop.
How did Boeing manage to get a 100% share gain in a year and yet Wall Street still believes it will go much higher? Apple didn’t even get a 50% share gain and Wall Street believes Apple is finished in terms of share gains for all of 2018. Something is very, very wrong with Apple’s outlook. How does a company with so much spare cash hit a solid wall of zero growth?
Because they make real products and it’s a mature market. The days of exponential growth (and wall street growth projections) are over until the next big thing. With virtual products like FANG they can always imagine crazy future earnings- even when the present is limited. I would like to see Apple buy Disney/ABC/ESPN. Content is king and they might be able to do something really synergistic.
Well they only make one product basically
Buy back the shares. Why waste time doing something stupid like modernizing the Macs and keeping the Apple Ecosystem healthy?
As a shareholder I would prefer they look at those receiving lower tier wages and give them a raise, including those working at the retail establishments. Treating people well is extremely important to the success of a company.
My belief is that dividends should be paid based on the performance of the company during the previous year (or quarter)
The money being held overseas should not be used as a cash payout to shareholders. That is a short term approach when Apple is far more protected by using those funds for long term profit building AND ensuring that there is a solid cash fund for the Next Great Recession. Actually it could be an actual depression as the Great Recession benefitted from Obama coming into office and making moves to stop the slide into a Depression, I don’t believe the Deadbeat Donny would be able to do that.f. Keep the cash for protection and for growth via R&D, capital investments and more stores.
Actually it might also be wise to keep 20% TO 25% overseas and avoiding that tax. Apples is going to need cash there over time for new stores, production facilities and foreign R&D.
I have never imagined that Apple would want to repatriate all of it’s off-shore cash. As you say, it makes a lot of sense to leave a fair amount of it where it is.
AAPL is no longer a normal stock, its valuation and ownership profile with institutions make it akin to a government bond. It has become TBTF and the share price must be “stabilized” no matter what.