Apple over the past few years has found itself in an interesting and enviable position; thanks to the raging success of the margin-friendly iPhone, Apple has long had more cash than it knows what to do with. Compounding matters is that the vast majority of Apple’s current cash hoard — which now totals more than $269 billion — is located overseas. That being the case, Apple has historically been reluctant to bring that cash back to the U.S. so as to avoid a corporate income tax rate of 35%.
Thanks to the recently passed Republican tax plan, however, Apple has an opportunity to take advantage of a one-time tax holiday that will allow it to bring back as much as cash as it wants and only incur a tax rate of 15.5%. In turn, many analysts in recent weeks have been speculating about what Apple may ultimately do once it brings back potentially tens upon tens of billions in cash.
Gene Munster, for example, believes that Apple will utilize its influx of cash to significantly boost its dividend and share buyback program. Specifically, Munster in an investor note last month articulated that Apple will increase its share buyback program by $69 billion while also increasing its annual dividend payout b 15%. Other analysts, meanwhile, have opined that Apple may use its repatriated cash to make a blockbuster purchase, with Citi analysts noting that Apple may even be interested in acquiring Netflix, however unlikely that scenario may be.
Not everyone, though, is of the mind that Apple will be eager to spend a good portion of its cash hoard. Ston Fox Capital, for example, notes in a post via Seeking Alpha that Apple is likely to stay the course and that we shouldn’t expect the company to make any significant changes to its capital return program.
“In reality,” Stone Fox Capital notes, “Apple is likely to make the same moves as the past few years and the market will ultimately reward the stock in part due to the lower risks of having a large war chest full of cash to fight the battles in the competitive technology sector.”
With respect to the prospect of Apple significantly increasing its capital return program, Stone Fox Capital notes:
Neither of the analysts seem to explain why Apple would spend more money on stock buybacks after paying a large tax repatriation fee. Not to mention, a lot of valuation measures suggests the stock is the most expensive over the last five years.
All in all, there’s no way to anticipate what Apple will do with all its cash, but I’d venture to say we can expect some interesting announcements with respect to dividends and stock buybacks when Apple holds its earnings conference call in a few weeks. The reality is that Apple, as company executives have already conceded, has more cash than it realistically needs to run its business. That said, some have even opined that Apple may even issue a special one-time dividend payout sometime in 2018. Typically, Apple only provides us updates about its capital return program in April, but perhaps we’ll see an update sooner in light of Trump’s tax plan.