“Over the past seven months, Apple has been engulfed in an endless spiral of negativity. Whereas once the Mac maker could do no wrong, overwhelming investor fear about deceleration and market saturation got the best of Apple, quickly turning it into a shunned stock,” Evan Niu writes for The Motley Fool.
“With fiscal second quarter earnings and the long-awaited cash announcement, Apple just changed everything,” Niu writes. “Perhaps the biggest announcement is that Apple has more than doubled its capital return program, at long last addressing shareholder criticism about capital allocation. As a fan of superlatives, Apple pointed out that this is the ‘largest single share repurchase authorization in history.’ That’s an incredible $50 billion increase in buyback clearance. That increase alone is over an eighth of Apple’s entire market cap right now. Apple also boosted its regularly quarterly dividend by a modest 15% to $3.05 per share.”
“In order to pursue this program without touching overseas cash, Apple is making a bold move and taking on debt. The company didn’t specify details, but CFO Peter Oppenheimer noted that one of the primary benefits would be to reduce Apple’s overall cost of capital, a point I outlined previously after estimating Apple’s cost of equity around 10% using the capital asset pricing model. Management and the board felt that ‘investing in Apple was the best’ option,” Niu writes. “To that end, Apple has earned an AA+ credit rating from Standard & Poor’s, the same rating as the U.S. government. The paper that Apple issues will be safe, indeed.”
Niu writes, “In many ways, investors are now looking at a new Apple. The capital return program represents a dramatic shift in Apple’s capital structure. At the same time, Cook acknowledged the potential of new frontiers that the company is facing and will likely tap in the near future.”
Read more in the full article here.
[Thanks to MacDailyNews Readers “Fred Mertz,” “Arline M.,” and “JES42” for the heads up.]
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