On Second Thought, Apple -- We Don't Need a Dividend
Mar 14th 2012 10:00AM
Updated Mar 14th 2012 1:48PM
There have been a lot of people calling for Apple (NAS: AAPL) to begin shelling out a dividend. I'm not one of them. The world's most valuable tech company has better things it can do with its money. However, now it seems as if taking a stick to the pinata of Apple's roughly $100 billion in cash and marketable securities isn't enough.
Bernstein Research analyst Toni Sacconaghi suggests that Apple should take out between $50 billion and $100 billion worth of debt to begin shelling out a meaty payout.
Just like that, the world's richest company would become its biggest borrower.
There's a method to Sacconaghi's madness -- and it is a madness. He sees that two-thirds of Apple's hoard is bolted down overseas, at least until the U.S. drums up a cost-effective carrot for major corporations to repatriate their profits without getting walloped by taxes. Apple's a globetrotter, and that now means that less than a third of its current profits are stemming from stateside operations that can be played without triggering repatriation hits.
Fair enough. We know that Apple's greenery is overstated on its balance sheet because of our country's out-of-whack repatriation policy relative to the rest of the world. Why should this make Apple a panhandler just so it could crank out a 2.5% yield?
It doesn't make sense.
You know who has a 2.5% yield? Microsoft (NAS: MSFT) . Just a few years ago, the global software leader was more valuable than Apple. Are you telling me that investors would prefer to have invested in Mr. Softy over the past five years -- collecting a growing dividend along the way on top of a roughly 25% pop in capital appreciation -- than see an Apple investment catapult sixfold?
Cisco (NAS: CSCO) is another company that was worth more than Apple a few years ago. The networking behemoth was even the country's most valuable company at one point just before the dot-com bubble burst. It recently initiated a distribution policy. Is Cisco's 1.6% yield really a consolation prize given the underlying stock's underperformance?
If Apple believes it needs to begin offering up a modest dividend to give its shareholders some App Store pocket change, fine. I don't agree with it. Let Apple deploy its cash in the form of acquisitions -- here and abroad -- that will deliver incremental growth, or turn to stock buybacks that will improve profitability on a per-share basis. Why dabble in taxable dividend events over the moves that are tied closer to capital appreciation?
However, if a payout is in Apple's future -- even if for Cisco and Microsoft it's really been a "jump the shark" moment -- please don't ask the class act of Cupertino to borrow money to do it. I don't care about how low its financing rate would be or how happy it would make investment bankers.
Apple isn't broken. Stop trying to fix it.
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