Apple is handcuffed by how much it can raise its dividend

“Everyone knows that Apple has a tremendous amount of cash and continues to generate tens of billions of it every year,” Chuck Jones writes for Seeking Alpha.

“Multiple articles get written that the company should increase its dividend by a substantial amount since it earns so much and has a lot in the bank. However, what almost all the writers don’t mention or realize is that the company can only use US cash or raise debt to pay dividends or buy back stock,” Jones writes. “I believe that it makes sense to use debt to buy back shares but not increase the dividend by a large amount.”

“If Apple were to increase its payout by 50% to match Cisco’s and IBM’s, it would spend over $18 billion in cash every year and have to issue $6 billion in debt every year to cover it,” Jones writes. “It would put the company on the dividend treadmill to issue debt every year to cover its dividend, and since I believe management and the Board are taking a multi-year if not multi-decade outlook, this is not the path they want to go down unless it can be avoided. That is why I believe Apple will increase its dividend by about 10% a year so as to be on a measured approach and garner investors that value a rising dividend over multiple years if not decades.”

Much more in the full article here.

MacDailyNews Take: Of course, as Jones mentions in his full article, a tax repatriation holiday or a revision of the onerous U.S. corporate tax structure, could change things significantly.

Under the current U.S. corporate tax system, it would be very expensive to repatriate that cash. Unfortunately, the tax code has not kept up with the digital age. The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free flow of capital… Apple has always believed in the simple, not the complex. You can see it in our products and the way we conduct ourselves. It is in this spirit that we recommend a dramatic simplification of the corporate tax code. This reform should be revenue neutral, eliminate all corporate tax expenditures, lower corporate income tax rates and implement a reasonable tax on foreign earnings that allows the free flow of capital back to the U.S. We make this recommendation with our eyes wide open, realizing this would likely increase Apple’s U.S. taxes. But we strongly believe such comprehensive reform would be fair to all taxpayers, would keep America globally competitive and would promote U.S. economic growth.Apple CEO Tim Cook, May 21, 2013

27 Comments

  1. If Apple has so much cash and so much management and engineering talent, how come it can do the very simple task of keeping all its major cash cow products current with the latest in technology? How come, with all this money, Apple seems unable to generate any serious innovation in promoting sales – basic marketing that goes beyond its Keynote addresses and running its Apple stores? How come with all this money, Apple never seems to do anything these day to command attention except for making grandiose political statements about how sovereign states should govern themselves and other liberal agenda items that do zero for the customers or the bottom line? How come?

    1. At least make the Mac Pro into a real Pro machine matching at least some companies’ Windows machines using the latest processors and graphics cards. Is that really so much to ask? The only thing special about the cylindrical Mac Pro is the shape of it. Unless it can use the latest off-the-shelf graphic cards it just seems handicapped from the get-go. Why can’t Apple manage something as simple as that? Would that really cost them so much money considering they’re throwing away billions of dollars every quarter on buybacks. Is it because no one has the guts to tell Jony Ive what’s really important in designing a Mac Pro? If they want to keep the cylindrical Mac Pro fine, but there should definitely be some machine above that.

      1. hold on now, don’t be lumping good old zune tang in with these other folks.

        he was clearly at the top of his game when it came to satire and parody – at mr. microsofts expense, though couched as jabs at mr. apple.

        he was neither troll nor complainer.

        ultimately, he was entertaining. and funny

        1. Well I suppose it’s like there’s no such thing as a bad movie so much as a boring one. I find most trollish or contrary individuals are not particularly funny in their seething hatred, though there are exceptions.

          1. you be right that there are several johnny one notes lurking about this forum whose level of cantankerous intolerance and self congratulatory smugness (hi botty!) can be both wearing and unproductive.

            while they thrive on being provocative, they seem to be more successful at simply being annoying. but that is the nature of free speech.

            kinda like being an old unhappily married catholic couple, ya can’t stand each other, but you can’t get de-vorced either, so you’re stuck with each other, like we are stuck with them.

            1. Sorry Doctor, botvinnik is not at all representative of the others that were cited as deleterious to civil discourse. You mentioned Zune Tang. He was funny because he exaggerated what the Microsoft trolls were saying. As for Frank, Mike, and Joe, they are serious trolls, though of different ranks. Their tirades exemplify the criticism of the analysts, presented in visceral terms. Contrasted with all of them are the contrarians. These are people that love Apple and Steve Jobs but bemoan what is happening today.

              I can’t stop you from labelling people, but please try to get them into roughly the same camps.

  2. Blah, Blah, Blah. Go ahead and try. Apple is so diverse now. Music, services, expansion. Apple has always done things in its own time frame. The upgrades are coming and they will usher in new technology and different ways to access the new services. Tim Cook is not like, say Samsung, Microsoft, Google, etc. Apple is becoming the premium standard around the world. Moving into India, another large customer base. Tim Cook is having to be a diplomat also, meeting with India’s top official to open that market up even more. Apples stores will be popping up all over India shortly. There is a lot Tim Cook has to juggle, including the IPhone supply chain. Right now current Apple products are on top in thelr categories. Just got ear that JD Powers ranked Apple Watch at the top in customer satisfaction. Taking 52 percent market share in the smart watch category in its first year. You will get the upgraded products this fall and I have a feeling you won’t be disappointed……

    1. Yep, Tim has a lot on his plate. Lecturing American states about how there public rest rooms should be run, with easy access by child molesters to the Little Girls Rooms. And then Tim has to lecture us on Global Warming and Homosexual Marriage. All this lecturing takes time and is of course more important than the stupid stuff Steve Jobs use to emphasize, making insanely great products and putting smiles on customers faces.

      1. It is not Tim Cooks fault that Americans are idiots and don’t know how the public rest rooms works. If you need privacy then you go to stall and close the door and lock it. If you are afraid that somebody might see your willy then you don’t go to a urinal. And so on. Now there is States that wan’t to have a public servant toilet nazi to check your goods and papers before you enter to any toilet.

        1. Right. Tim Cook can’t help it that fathers object to the idea of grown men child molesters being given free access to the Girls Rooms of America, because we have now advanced to the point where Ladies Rooms are now understood to be properly used by men with dicks and criminal records and criminal intent. Because that is so fashionable.

  3. My God… People are so ridiculous. What do people want from them? “Why can’t the new iPhone cure cancer”? There a electronics company that has more money than most of the countries in the world. If you don’t like what they give, there are a lot of other companies to invest in if you don’t like them.

    1. What a ridiculous article. Even with a tax repatriation holiday, there is no guarantee that Apple would want to increase their dividend.

      More BS speculation and criticism…nothing to see here.

  4. Dividends are recurring events so Apple needs to be able to commit for at least a year. Therefore it certainly does not make sense to borrow since the money is essentially being removed from the company (and results in a corresponding reduction in price per share).
    Buybacks are one time actions and actually reduce the cost of dividends by reducing the # of outstanding shares. Given the low interest rate it is possible to save money by borrowing to retire shares and reduce dividend costs as a result.
    Tax repatriation will likely be used on more buybacks rather than dramatically increasing dividend.

  5. Obviously you don’t understand what Apple is doing so I recommend that all of you go and listen to this:

    5by5.tv/criticalpath/182

    There Horace explains to you what Apple Production System is and what it does and why it is so HUGE. This is what Tim Cook has created from the beginning when he was a COO. Apple Production System is what everybody tries to do.

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