A new dividend policy for Apple

“Apple’s stock price has been moving up over the last weeks, due to an improving outlook for the second quarter and the rest of the year, as the new iPhone SE seems to be a hit and focus is increasingly shifting away from the iPhone 6s and towards the coming iPhone 7,” Jonathan Weber writes for Seeking Alpha.

“Apple has stated that the company would announce a new shareholder returns strategy in the near future,” Weber writes. “Apple produced free cash flows of $63 billion over the last year, and has a cash pile of $216 billion on its balance sheet (consisting of $178 billion in long-term investments and $38 billion in short-term investments and cash). Apple has paid out $37 billion to its shareholders in the form of stock buybacks and $12 billion in the form of dividends (for total shareholder returns of $49 billion).”

“We know that $200 billion of these $216 billion Apple has in cash are located overseas, which means that these cash amounts are not easily available for shareholder returns in the form of dividends or share repurchases (but could be used to make acquisitions, as long as the target is not headquartered in the US),” Weber writes. “Apple returns a lot of cash to its shareholders, mainly in the form of share repurchases, but this approach hasn’t been very successful in generating higher share prices, as Apple’s share price is down 10% over the last year. I thus believe a different approach could be viable: Increasing the dividend substantially, and at the same time repatriating Apple’s offshore cash to keep funding share repurchases for the near future.”

Read more in the full article here.

MacDailyNews Take: Forfeiting 40% of overseas cash for the U.S. government to blow — on such things as litigating against Apple in numerous cases and on third-parties to hack iPhones, for just a few examples — is not an intelligent use of Apple’s hard-earned money.

If Apple wants to increase dividends, they should simply issue more bonds. It’s free money.

23 Comments

  1. I certainly hope Apple does not capitulate to the U.S. government’s ridiculously highly repatriation of funds stance. What part of “these funds will stimulate even more U.S. growth if allowed to return at a reasonable rate from ALL companies doing worldwide business” don’t they understand? They prefer all or nothing I guess. And nothing they shall get.

    Apple and others are just encouraged to do more business (and jobs) out of country. Of course not the first time un-visionary government has shot itself in the foot.

      1. I didn’t say “move” if you read it correctly. Apple does plenty of business already overseas. Doesn’t require they move the company. If you look at the chain of taxes directly or indirectly derived from companies like employee personal taxes, taxes from the sale of products, resale, property taxes, business taxes, a whole litany of taxes and tax structure already in place how greedy can a government get regarding company taxes? Obviously you don’t own a business. I do see a reasonable cop orate tax rate in place for sure, but I would rather see a company invest in their and our future than government sh*tting it down a wasteful rat hole.

        1. It’s not really that simple. The US government does more than any other country does, and thus spends far more, abroad keeping the peace, protecting US interests in foreign countries, and providing economic aid to developing countries. And US companies get to take advantage of those efforts by having a bigger marketplace and safer societies in which to do business. For example, over the last 66 years, India received over $65 Billion (if using inflation adjusted numbers) in purely economic aid (not military aid). That money helped build the society and business atmosphere that companies like Apple take advantage of – India is one of Apple’s fastest growing markets. And that’s just one country. So why shouldn’t Apple pay taxes to help support the system that allows it to make profits worldwide?
          Having said that, I agree the system is out of date and needs to be refined. But it’s not nearly as simple as a greedy “government sh*tting it down a wasteful rat hole.”
          And there’s plenty of evidence that the 2004 “tax holiday” granted to US companies didn’t work – far from stimulating investment and employment, the 15 companies that repatriated the most cut 21,000 jobs over the next three years and decreased their R&D spending. Some estimates put the cost of the tax holiday to the US Treasury at $3.3 Billion. Even the conservative think tank Heritage Foundation says that another tax holiday won’t nudge large companies into any investments they wouldn’t otherwise make because corporate profits are at a record high and companies aren’t short of onshore cash.

          1. Frankly the money difference (a relative pittance) to the government or the advantages of keeping the money to stimulate the economy yields far greater advantages in the end for government funding regardless. Your approach is more penny wise, pound foolish. Yes a consensus and fair terms need to be mutually agreeable. With futile government intransigence we are at a standstill and no one benefits.

            1. I’m not sure what you mean by my approach. I was pointing out that there are numerous sides to every story when dealing with world affairs. And it’s undeniable that the US spends more on economic aid to other countries than any other country does. That money has to come from somewhere, and if part of the benefit of that spending increases a US company’s profits, there is an argument to be made that the company should contribute to the cost.
              I fully agree with you that government intransigence helps no-one. But some republicans and some democrats (politicians, economists, & think tanks) agree that there should be a tax holiday while some republicans and some democrats think there shouldn’t be one. I just don’t think the issue is as simple as “stupid f*cking government.”
              I’ve found in life generally that if something doesn’t make sense it’s usually because you don’t have all the facts. I don’t think you have all the facts on this issue.

            2. Yeah it comes from U.S. Taxpayers. a fair tax should be received from business owners but we shouldn’t pretend they’re the Golden Goose we can plunder. Fiscal restraint also plays a role. I think the tax holiday is not meant as a freebie but a more reasonable tax rate at 15%. 15% of something beats 15% of nothing. As it is government often taxes a tax and indirectly taxes again.

              You’re using Straw Man arguments so the confusion comes from you and they’re not particularly good arguments. It doesn’t matter how inexhaustible the fiscal needs of government are. The issue is fair taxation of business and corporations repatriating funds. Emotional arguments of need aren’t worth two plugged nickels.

      2. Certainly, they aren’t special. But they don’t really ask for special treatment; they ask for fairness.

        Apple has paid all the taxes due in every country where they do business. For profit made in USA, Apple pays taxes in USA; for profit made in Paraguay, Apple pays taxes in Paraguay; same for Australia, South Africa, Qatar, Greece, etc… What IRS is saying is: “We don’t care how much you paid in taxes over there; if you want to move that money back to the USA, you have to pay us as well”. There are very few countries in the world with similar taxation laws; most developed (=free, capitalist) economies don’t do double-taxation (taxing profits made in foreign lands that were already taxed abroad).

        It is quite strange that the US is the only one with such heavy tax burden on domestic companies doing business abroad.

    1. That sounds good to me but Apple is trying to reduce the number of shares it has to pay dividends to so in turn it could pay higher dividends for a longer period of time. I’m not sure to how low a count Apple is trying to reduce outstanding shares, so it’s anyone’s guess how long those buybacks will go on.

      Apple has to take on debt to achieve that share number goal because most of the money it makes is from overseas. Until that share number goal is reached I have no choice but to take whatever dividend amount Apple can reasonably afford to give me.

        1. Well, think about it. You may be able to answer your own question. Hint: it has to do with the proportionality of any dividend relative to however many number of shares Apple wants to call them. (The same goes for share price and however many number of shares it “buys”.)

  2. I definitely would like a significant increase in dividend rate. There is no tax burden (yet) since my share are in a 401K account and dividend reinvestment is in place.
    Repatriating cash at the current rate does not make any sense. So any hike in dividend rate will need to come from US income or borrowing. I would prefer Apple not to borrow to pay for dividends. Sure the rate is cheap but you still have to pay it back.

  3. There is a huge difference between dividends paid on all shares outstanding, and buy-back money paid to a (relatively) few shareholders willing to cash-out their shares. So, no, Apple did not pay “$37 billion to (all) its shareholders” when it bought back shares …at least, not in the same way Apple paid $12 billion in dividends to _all_ shareholders.

    I understand the financial rationale for the share buybacks. But the share buyback did nothing for me, a shareholder holding Apple as a long-term investment. I would have preferred to see the buy-back money spent on dividends. Dividends reward all shareholders and, particularly, long-term investors …not just those few shareholders willing to cash-out.

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