Apple Raises Bar With Stock-Buyback Plans
DOW JONES & COMPANY, INC. 5:15 PM ET 5/1/2018
Symbol Last Price Change | AAPL | 169.1 | +3.84 (+2.32%) | | QUOTES AS OF 04:00:00 PM ET 05/01/2018 |
Apple Inc.'s (AAPL) aggressive plans to buy back stock and increase its dividend is designed to fulfill a longstanding promise to shower its cash stockpile on shareholders.
Tuesday, Apple(AAPL) said its board approved a 16% increase in its quarterly dividend, to 73 cents a share from 63 cents, and $100 billion in share buybacks.
The payout is among the largest in corporate history and comes after Apple(AAPL) announced in January it would bring the majority of its $269 billion in overseas cash holdings back to the U.S. The move follows the major U.S. tax overhaul President Donald Trump signed into law late last year that requires companies to pay a one-time tax of 15.5% on overseas profits held in cash.
Apple (AAPL) had promised for more than a year that it would return overseas cash to investors if tax laws changed. The combination of repurchases and dividends builds on the $275 billionApple(AAPL) has returned to shareholders since 2012 when, under activist pressure, Chief Executive Tim Cook reinstated the company's cash dividend for the first time since 1995. It boosted returns in subsequent years as activists, including Carl Icahn, pushed for increased buybacks.
Apple (AAPL) on Tuesday didn't provide a timeline for when it will buyback shares. Finance chief Luca Maestri said the amount is "so large that it's going to take some time to execute it." He added the company plans to do it at a "fast pace."
In addition to the repurchase announcement and increased dividend, Apple(AAPL) said it accelerated its plan to repurchase $210 billion in shares by three quarters and will complete those repurchases by the end of June rather than March 2019, as previously announced
"You see the confidence we have in Apple(AAPL) and the future of the company," Mr. Maestri said.
Apple's (AAPL) expanded capital-return plan is the largest a technology company has announced since the tax change, dwarfing the $25 billion in share repurchases and 14% dividend increase Cisco Systems Inc. announced in February, according to Moody's Investors Service.
The cash disbursement is reminiscent of the huge payout Microsoft Corp. announced in 2004. Believed to be one of the largest corporate cash disbursements in history, it was valued at $75 billion over four years, roughly $99 billion today after adjusting for inflation.
The Microsoft payout marked a turning point for what was then technology's most successful company. The money came from Microsoft's lucrative Windows business at a time when growth was slowing as the PC market matured. It followed a congressional tax cut on dividends.
Apple's (AAPL) cash disbursement follows another major change to tax laws and lands amid slowing growth for the company's cash-generating machine, the iPhone, which has seen shipments stagnate in recent years as the smartphone market matures. The company had been stockpiling cash from overseas profits for years because the U.S. had a 35% tax rate to bring the money home -- an approach Mr. Cook defended on Capitol Hill in 2013.
It is expected to boost earnings in the future by taking shares out of the market and increasing its earnings per share. However, Sanford C. Bernstein analyst Toni Sacconaghi played down its parallel to Microsoft's payout in 2004, noting that Apple(AAPL) still generates about $50 billion in free cash flow annually and has promised to return overseas cash for years.
"It's the natural evolution of a company. You don't need all your cash, and you start returning it," Mr. Sacconaghi said. "It's like people getting older, they need glasses to read."
The payout shouldn't affect Apple's(AAPL) ability to invest in research and development or make acquisitions in the future, analysts say. The company has more than tripled spending on research and development under Mr. Cook to $11.58 billion last year, and it has never paid more to acquire a company than the $3 billion it spent for Beats Electronics LLC in 2014.
"I don't think this restricts their future degrees of freedom," Mr. Sacconaghi said. "They could buy something. Do more buybacks in the future. There are choices."
Write to Tripp Mickle at Tripp.Mickle@wsj.com
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