(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Robert Cyran
NEW YORK, March 19 (Reuters Breakingviews) - Apple is finally giving its shareholders a bite of its cash pile. The company will hand out about $45 billion over three years, including some $30 billion of dividends and $10 billion of buybacks. While that’s a good start, Apple could make $50 billion in free cash flow in the fiscal year ending in September. With sales and profit rocketing -- and the bulk of its huge cash hoard still stuck overseas -- bigger payouts will surely follow.
Apple had $98 billion of cash and investments on its books at the end of December. Close to two-thirds is held overseas, and repatriating it to the United States would involve a big tax hit. So Apple is keen to avoid tapping this, preferring to let it grow while it awaits a possible tax holiday.
That still leaves $34 billion in the United States. Even this domestic stash probably won’t be touched, despite the new payouts. Apple tends to avoid big acquisitions, and the company has been disciplined with its investments in research, development and the like. And the dividend is set to start only in the three months ending in September, by which time another few quarters of cash will be in the bank.
Assume Apple does make $50 billion in free cash flow this fiscal year, and that a third of that is in the United States. That’s more than enough ongoing cash flow to cover $15 billion a year of dividends and buybacks. Moreover, Apple’s revenue and profit are growing. The company’s top line increased 73 percent in the last quarter of 2011 from a year earlier, and earnings more than doubled.
Growth isn’t going to grind to a halt, either. The company’s new iPad went on sale last week and Tim Cook, the chief executive, said on Monday’s call that the result was a record weekend. Other new or refreshed products are expected in the fall.
All that means the near-$100 billion cash pile is still going to grow, not shrink. Not surprisingly, shareholders welcomed Apple’s payout announcement, pushing the company’s market value up by approaching $10 billion. But as the money rolls in, they may soon start asking the big question again: What is Apple really going to do with its cash?
-- Apple on March 19 said it had authorized the repurchase of $10 billion of its stock over three years and plans to commence a quarterly dividend of $2.65 a share in the fourth quarter of its fiscal 2012, which begins on July 1.
-- Between dividends, share repurchases and cash used to settle vesting restricted stock, the company said it would use about $45 billion of cash in the first three years of the payouts.
-- Apple had $98 billion in cash and investments on its balance sheet on December 31, $64 billion of it held outside the United States.
-- Company statement: link.reuters.com/mer27s
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Editing by Richard Beales and Martin Langfield