Apple initiated its capital return program three years ago in April, and this year, according to an analyst, the cash-rich company will opt for a $200 billion program to buy back shares and increase its dividend. According to Kulbinder Garcha of Credit Suisse, the company is sitting on more cash now compared to the time when it started this program.
Apple’s cash balance on the rise
Garcha expects Apple’s net cash balance to amount to $143 billion by April 2015, and there is a strong possibility that management will further raise the capital return program. According to Garcha, there will be a significant surge in the program in the next three years ending 2017 to over $200 billion, of which $165 billion would be buybacks and $37 billion would be distributed as dividends.
Tollymore Investment Partners 2Q20 Letter: ESG ≠ sustainable investing
Tollymore Investment Partners letter to investors for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear partners, Tollymore generated returns of +19% in the first six months of 2020, net of all fees and expenses. Investment results since inception are shown below: Tollymore's Raison Detre Tollymore is a Read More
In April 2012, everyone was surprised when Apple announced a $45 billion capital return program with $35 billion kept aside for dividends and the rest for buybacks. In 2013 and 2014, it was further raised to its current level of $130 billion to be returned between 2012 and 2015. Share buybacks are a significant part of the total capital return program, with $90 billion now earmarked for them and $40 billion for the dividend, according to Credit Suisse.
Investors expect more
A $200 billion capital program is equal to the current market cap of Chevron. It is even more than the market capitalization of 489 companies in the S&P 500 Index, such as Verizon, Oracle, Coca-Cola and Berkshire Hathaway, according to a report from CNBC.
However, investors are expecting more from Apple even though the current program is already huge. The reason for such expectations is because since the end of March 2012, Apple shares have trailed the market, giving a return of 28% compared to the S&P 500’s 44% return. The company’s current dividend yield is 1.7%, which is below the S&P 500 SPDR ETF Trust’s 1.9% payout.
In the first quarter of 2012, Apple was sitting on a cash pile of $97 billion, and since then, it has increased even after the continuous capital return to an estimated $142 billion at the end of this quarter. If Apple chose not raise its capital return program, in such a scenario, Garcha feels it “would be very difficult for Apple’s management to justify,” such a massive cash balance.
The Credit Suisse analyst assigned an Outperform rating to the stock and expects the share price to rise 19% higher over the next 12 months compared to Monday’s closing price.