Author Archives: Victor Kovalkov

Many investors and financial analysts claim that Apple’s stock price is significantly undervalued. The stock price could be much higher if the company did not hold a significant amount of cash ($145 billion) on which it receives very low return. If the company used this cash to pay dividends instead, the shareholders could put this money to better use. Consequently, the stock price would increase.

There is  reason why Apple doesn’t want to return all the cash to shareholders. Significant parts of the cash (about two thirds) is held abroad in lower-tax jurisdictions. Thus, if Apple decides to pay dividends, it will need to transfer these funds to the United States and pay US taxes on this income. Instead, the company expects that there will be federal tax relief in the future and it will be possible to avoid this extra taxation.

The company has found a solution. For the first time in nearly two decades, Apple has issued bonds raising $17 billion. The bonds’ interest rates are almost as low as the interest on the debt of the United States Treasury. The funds from the bond issuance will help finance buying back the company stock and paying dividends to shareholders to the tune of $100 billion in total.

This decision helps Apple meet shareholder expectations while at the same time avoiding a potentially big tax hit. Since the announcement of the dividends, Apple stock price has risen by 10%.

Sources:

1) Unusual Moves in Confronting Apple’s Huge Pile of Cash, STEVEN M. DAVIDOFF, FEBRUARY 12, 2013, http://dealbook.nytimes.com/2013/02/12/unusual-moves-in-confronting-apples-mountain-of-cash/

2) To Satisfy Its Investors, Cash-Rich Apple Borrows Money, PETER LATTMAN AND PETER EAVIS, APRIL 30, 2013, http://dealbook.nytimes.com/2013/04/30/apple-raises-17-billion-in-record-debt-sale/