Apple expected to boost shareholder returns by at least $100bn
Record expansion could win over investors concerned about slowing smartphone sales
Apple plans to return an extra $100bn at least to shareholders, analysts predict, as it prepares to redistribute its repatriated overseas profits.
A record-breaking expansion to Apple’s capital returns scheme, set to be announced alongside its latest quarterly earnings this week, could help win over investors who have become preoccupied by concerns of a global slowdown in smartphone sales.
Apple said in February that it planned to eliminate what was then a $163bn cash pile, net of debt, after repatriating capital accumulated overseas following recent US tax reforms.
Wall Street analysts expect the vast majority of those profits to be given back to shareholders in the coming years, in a move that could take Apple’s cumulative capital returns since 2012 to as much as $450bn by 2020.
After resuming dividend payments and instituting a share buyback scheme in 2012, Apple has added between $30bn and $50bn to its capital returns programme at around this time every year.
At its current pace, ahead of this week’s eagerly anticipated announcement, all those buybacks and dividends will total $300bn by March 2019.
Analysts at Morgan Stanley estimate that Apple could announce a $150bn increase to that sum on Tuesday.
“This would imply Apple repurchases $210bn in shares and pays $52bn in dividends over the next three years,” the bank said in a recent note to clients, adding that this would still leave about $30bn available for acquisitions.
Other Wall Street analysts are not quite so optimistic but their estimates still amount to a record-breaking sum. Citigroup expects a $100bn increase while RBC Capital Markets predicts an extra $80bn-$90bn over four to five years.
Luca Maestri, Apple’s finance chief, in February told investors the company was aiming “to become approximately net cash neutral over time”, but provided no deadline for doing so.
Neil Cybart, an analyst at Above Avalon, said a dramatic increase in capital returns was the only way for the iPhone maker to achieve that goal, given it is still churning out more than $50bn of free cash flow a year on top of its substantial existing reserves.
“Assuming Apple maintains its current share buyback pace and cash dividend payouts, it would take Apple close to 10 years to spend $325bn of excess cash,” he said. “Big changes are needed in order for Apple to reach an optimal capital strategy in a reasonable amount of time.”
When Apple reports its latest quarterly earnings on Tuesday, the world’s most valuable company is expected to reveal revenues of about $61bn, after selling an estimated 54m iPhones in the three months to March.
However, the company’s shares have softened following a succession of gloomy trading updates from suppliers such as Qualcomm, Samsung and TSMC, which have warned that iPhone sales are slowing down.
Investors will be watching Apple’s outlook closely for any signs of weakness. Morgan Stanley recently slashed its forecast for iPhone sales in the June quarter to 34m, implying a 17 per cent year-on-year decline, which its analysts fear could overshadow the long-awaited decision on what to do with all that overseas cash.
“Apple’s capital return announcement could amount to a ‘sell the news’ type of event, especially if forward estimates are revised materially downward,” Morgan Stanley said.