“Apple’s dividend was recently hiked 15% to $12.20 per share annually. In addition, the board increased its share-repurchase authorization to $60 billion from $10 billion – the largest single-share repurchase authorization in history,” Ian Wyatt, Wyatt Investment Research, writes via Yahoo Finance. “At first glance, the dividend hike appears to be a no-brainer. On second glance? Less so.”
“Apple faces a bit of a conundrum: $102 billion of that $145 billion is held overseas. Taxes are an issue. If Apple were to repatriate its foreign-held cash, it would be subject to U.S. corporate income taxes,” Wyatt writes. “That’s a problem, because U.S. corporate profits generated offshore are subject to U.S. corporate income taxes when repatriated (with a tax credit for taxes paid in foreign jurisdictions).”
“If corporate income taxes were uniform, there would be no problem. But corporate income taxes aren’t uniform,” Wyatt writes. “The United States has one of the highest marginal income tax rates in the developed world. So even though U.S. corporations are able to take a tax credit for foreign income taxes paid, corporations are loathe to subject foreign profits to the higher U.S. tax rate.”
This is understandable, given the wide discrepancy between the United States and the rest of the world:
|Country||Marginal Corporate Income Tax Rate|
Wyatt writes, “Granted, $17 billion isn’t a lot in the grand scheme of a company with a $400-billion market cap. But debt always increases financial risk. It’s also worth pointing out that if Apple plans on funding its ambitious return of capital with domestic cash, the risk is greater than you might think.”
Read more in the full article here.