The risky truth about Apple’s dividend

“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
United States 40%
Japan 38%
France 33.3%
Australia 30%
Germany 29.5%
China 25%
South Korea 24.2%
United Kingdom 23%
Sweden 22%
Global Average 24%

Source: KPMG

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.


  1. The salient line from the article, the hedge that allows the author a back way out, is this:

    “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. ”

    In other words, maybe, just maybe, Apple is funding its ambitious return of capital with foreign cash. In which case they’re pretty smart money managers. As all evidence prior to this bond issuance has pointed to them being.

  2. I understand that Apple has provided for these. Key question is whether the provision is a the US or local rate. My guess is the higher US rate as they will already have paid the local tax. If US gives a repatriation holiday or lowers the corporation tax rate then Apple will be able to reverse part of that provision.

    Your remark on higher leverage generating higher risk is true in theory but well wide of the mark here. Apple are generating over 40 billion of free cash flow p.a. (Although this could change – either way) and if the cash position deteriorated they could cut or even halt the dividend but that is a fair way off I think.

  3. in the Jobs Days, this site was catalyzed by the energy generated by the  genius for great new products and great new software that blew the doors off the competition and left them dumbfounded.

    Now it sounds like an accountants’ convention.

    1. In the absence of new hardware and new software from Apple this site has to have something to attract eyeballs! 🙂

      But if you’re really going to be that pedantic you might as well similarly object to any news reflected here about anything that isn’t Mac-related since the site is MacDailyNews, not iPhoneDailyNews nor iPadDailyNews..

    2. Some people (and companies) can do more than one thing at a time. Your suggestion that a company can either make great products or invest wisely is sloppy reasoning at its sloppiest. It’s like saying you can’t drive your car and store something in the trunk at the same time.

  4. I don’t like this article. He doesn’t give us any math of consequence. A chart of corporate tax rates around the world? What use is that?

    Apple currently makes $40 billion a year give or take. Assuming they have no growth, that will give them 80 billion to use as additional leverage. Essentially, they’re borrowing domestically what they make per year internationally. There is risk, but the risk is less than the risk of not putting a floor under the stock (which Cook/Opp/ItalianGuy did with the repurchase plan + dividend hike).

    Yes, it’s the biggest deal of its sort in history, but it needs to be understood that the program is very doable for Apple because Apple can make close to 100 billion over two years. It has nothing to do with market cap. Amazon has nearly half the market cap of Apple, but taking out even half the debt issuance that Apple has would be far more risky for them than what Apple has done here.

  5. I love these articles (dripping sarcasm…)! No matter what Apple chooses to do, they are doomed according to the experts. One says they are doomed if they don’t pay out more money to shareholders they are toast, another says that by doing so they are toast. I guess if the analysts take every possible position, someone is bound to be right at some point.

    The best article I have read lately is the one about how analysts live in fairy-tale land. Why is Apple trading at a lower P/E than Microsoft – this does not make sense on any level, whether you are looking at both companies projected growth, or looking at their history of introducing new products.

  6. Several important points the author skipped over. 1st Apple’s tax rate has been running around 26% of late. 2nd A big part of Apple’s free cash flow being great than their profits is that Apple accounts for taxes owed but not paid each qtr. 3rd the the interest owed on the debt is peanuts. Apple’s profits are running about 77k per minute. Debt service on the bonds sold is less than a million a day. So about 15 minutes a day of current profits will service the debt.

    Of course there is always a risk that things change and a company could stop paying its dividends. However the facts are that Apple is being very prudent in their approach. It never ceases to amaze me that as the public becomes less and less informed the press makes less and less effort to inform. Instead they seem content to spread FUD. I used to take it for granted that the 4th estate valued their position. That time seems to have long past.

  7. The stated corporate tax rate is a fantasy number for most countries. Most major American Corporations don’t pay ANY income taxes. this article should be filed in the popular fiction section.

  8. That is really amazing that my country Sweden a nice socialist country that I am very proud if is at only 22%. Gotta hurt to be the US to see that. And like a year ago Japan lowered its tax rate for corporations making US the no1… 🙂 this is kinda shocking. USA, the capitalist meca.

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