“I’m a big fan of Apple’s strategy of financing its massive share repurchase program with debt,” Evan Niu reports for The Motley Fool. “Not only does the Mac maker avoid repatriation taxes while delivering earnings accretion, but the whole program also comes at no net cost to the company.”
“Apple’s interest and dividend income more than covers the interest expense,” Niu reports. “Plus, by swapping out expensive equity capital for cheaper debt capital, Apple is able to reduce its overall weighted average cost of capital, or WACC. But reducing WACC is more of an implicit cost of capital. There’s another way that Apple’s debt-powered repurchase program delivers explicit cost savings.”
“As Apple repurchases and retires shares at an astounding rate, it no longer has to pay out the dividends for those shares,” Niu reports. “That translates into considerable savings on dividend expenses over time, considering how many shares Apple is repurchasing. Let’s do the math.”
Read more in the full article here.
MacDailyNews Take: Free money, free money, free money!
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