“Sure, many of the leaders from Silicon Valley won’t experience a massive tax break because of the recently passed tax bill, but they will have much cheaper access to their gargantuan overseas cash hoards,” Nicholas Ward writes for Seeking Alpha. “When looking at the balance sheet of the Silicon Valley habitants, we see that there are no shortages of companies with tens of billions of cash on hand.”
“The top five companies in the U.S. as far as cash reserves go are technology names. Oracle, Cisco, Alphabet, Microsoft, and Appleare the only U.S. companies with more than $50 billion stashed away. Alphabet is nearing the $100 billion threshold and Microsoft has achieved it, with its $133 billion on the books. But it’s Apple absolutely blowing away the competition with its reserves surpassing $260 billion (with the vast majority of those funds being currently held overseas),” Ward writes. “Just think about that for a second…$260b. That’s more money than many of the world’s developed nations have in reserve. People oftentimes express a desire that Apple moves into the original content space, right? Well, that’s so much money that Apple could buy Walt Disney and Netflix and still have ~$40 billion cash left, meaning it would still be 6th place.”
“Oftentimes I see individuals clamoring for increased dividends or even a special dividend in a special situation like this repatriation scenario. I know people harken back to Microsoft’s big special dividend after President Bush’s one-time repatriation back in 2004 when they look at Apple’s current situation, but it’s very difficult for me to justify such a capital allocation decision,” Ward writes. “If Apple were to pay a large special dividend, there would be large tax implications for shareholders. This tax would cut into the total cash received, making it a somewhat inefficient way to reward them… The company spends large sums of money on its own R&D and apparently doesn’t see the need to pay high M&A premiums elsewhere in the market. I’m fine with this as well.”
“So, at the end of the day,” Ward writes, “when it comes to investors who’re somehow upset about the fact that one of their companies is bringing home ~$250 billion with the likelihood returning the majority of those funds to shareholders, I’m going to take a page from Aaron Rodgers book and say, ‘“R-E-L-A-X…relax.'”
Read more in the full article here.
MacDailyNews Take: Yes, yes, yes to buybacks! (And healthy annual dividend bumps.)
When shares are undervalued, as Apple’s are, it makes sense for Apple to buy them back.
Apple expected to repatriate $214 billion to the U.S.; expect increased buybacks and dividends, not big acquisitions – December 22, 2017
Congressional Republicans deliver epic overhaul of U.S. tax laws to President Donald Trump – December 20, 2017