What ‘cash neutral’ means to Apple shareholders

“Cash Neutral means what?” Mark Bern, CFA, writes for Seeking Alpha. “My understanding of the term based upon what little Apple CFO, Luca Maestri, stated earlier this month is that the company intends to keep enough cash on its balance sheet needed for operations, dividends, R&D efforts, and planned acquisitions along with a buffer to handle unforeseen contingencies. The rest the company plans on returning to shareholders over time.”

“Or, it could mean that it plans on giving its cash hoard back to shareholders over a pre-determined period of time while operating on the cash it generates from operations,” Bern writes. “The difference is that in the second scenario the company will likely continue to build up another cash hoard over time because it just cannot find uses for all the cash it generates. But that is not really cash neutral in my mind unless management is planning to increase its acquisitions efforts to buy more companies with potentially faster growth prospects. That would probably end up generating even more cash, though, so what would management do with that? That is the sort of problem every CEO wants.”

“Never in the history of mankind has any company had so much flexibility in its capital structure,” Bern writes. “Apple could buy just about anything it wanted. Why? Because it has and continues to generate so much cash. The company has an estimated $285 billion in cash. It could buy any company in the U.S. outside of the 15 largest companies by market capitalization for cash at current valuations. Each year with the excess cash it generates it could buy almost any company outside of the top 100 in the U.S., again for cash, because it generates so much free cash flow.”

“Of course, it probably will not make such moves because eventually it would run into antitrust issues and it is unlikely that management would want to stray too far from its core competencies,” Bern writes. “A couple of options that analysts at UBS consider real possibilities are to either buy back 10% of the outstanding stock over the next three years which they estimate would boost EPS (earnings per share) by 30% compared to current estimates; or Apple could do a combination of share buy backs and maintaining the dividend yield at 3% through 2023. Either way the result is likely to be a higher stock price.”

Much more in the full article – recommended for AAPL shareholders and prospective AAPL shareholdershere.

MacDailyNews Take: What we wrote back in April 2016 works just as well today:

A little birdy tells us that, when it comes to what you’ve seen so far from Apple, you’ve hardly seen anything yet.

UBS: How Apple could get to zero net cash – February 14, 2018


  1. Is it possible for Apple, or any company, to have a tiered dividend payout, where short-term investors get a small percentage in dividends, a larger percentage for shareholders over one year, and the largest percentage for shareholders over five years?
    Is something like that legal? Seems like that would certainly promote more long-term investors and make these wild swings in share price more stable.

    1. I’d definitely like something like that but I’m also sure the big investors would manage to keep some small amount of Apple stock to keep them qualified as long term investors as they moved bigger sums of money in and out of Apple on a quarterly basis. The greedy big investors would manage to find a way to beat the system. I doubt there would be any way to force big investors to hold 50% of their money in Apple throughout the year.

      Because big investors control the market they’d never allow for something like that to happen. Apple would never get away with trying to keep more wealth from the wealthiest investors. Those big guys have no interest in companies. They’re only interested in the money they can get from them.

      It’s funny how Apple has as much money to play around with than almost any other company on the planet and yet Amazon is valued incredibly higher than Apple will ever be. It’s almost guaranteed Amazon will pass Apple in market cap this year even if it ends up with a P/E of 500 or so while Apple remains eternally stuck at a P/E of 16-18.

      Such high valuations are quite hard for me to grasp as were valuations in the dotcom era. Although Amazon is trying to corner almost everything, they don’t seem to have any antitrust issues at all. Go figure. Jeff Bezos must have some very good friends in high places.

    2. There can be multiple classes of stock with different voting rights, etc. And you may have heard of preferred shares, which are a sort of a mash-up between common stock and bonds. But, to my knowledge, all shareholders of a certain class of stock must be treated equally. It would not be possible to treat a new shareholder differently from a long term shareholder.

      1. You say that but then why does Netflix have such a high valuation? There’s nearly a universal agreement that Netflix is a far better investment than Apple.

        I wouldn’t touch Netflix because I’m always fearful of companies with nosebleed P/Es. However, I’m probably just a gutless investor. I’d rather see Apple tailor-build its own streaming video service than to buy Netflix at that crazy P/E.

        1. Apple Watch is more profitable than both Amazon and Netflix combined, but to Wall Street it does not matter, the only effect on Apple and it’s a bad one, is one of the new clueless content people at Apple is going to pitch the idea of only supporting one audio and video format on the Mac.

  2. and here is the money quote:

    “The point is simple: Apple can allocate its vast (and growing) capital in whatever manner its management decides is best. That is the ultimate in flexibility.”

    well, no kidding?

    seems like best possible argument available against going cash neutral.

    nobody knows what the future may bring, but it usually brings trouble, sooner or later, and sometimes big trouble, financially speaking

    – leave us not forget that we, and the rest of the world evaded a near total collapse of the economic system by the skin of our teeth just a few years ago. or the fact that the then over leveraged banks are even more over leveraged today.

    as a long time stock holder, i would love to see an increase in my dividends and stock value overall, but not at the risk of mr. apple making my wishes come true at the long term detriment of the company by depleting that nice big cash cushion they may need one day to keep the company going thru some extended hard times.

    if they don’t like sitting on cash, maybe they should buy a gold mine and start mining. you notice that two of the largest stockpilers of physical gold in recent years has been our not best buddies russia and china. both of whom are trying very hard to undermine the dollar as the worlds reserve currency.

    1. The combination of excessive spending, excessive borrowing, and cutting taxes with the insane rationale of generating more tax revenue will kill the dollar soon enough. We don’t need Russia or China’s help.

      Besides, China owns a lot of U.S. debt, even though they have tried to diversify their international currency mix. Don’t you think that China would sharply reduce its dollar-based investments before attempting to destroy the dollar? Not that it would matter. The crash of the U.S. dollar, which seems increasingly inevitable as the U.S. debt continues to grow, will bring down the entire world. Nothing will be safe during that scale of worldwide economic depression.

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