Is Apple Cheating You Out of a Fat Special Dividend?

It's been a roll call of the richest companies in America lately. The publicly traded entities with cash-flush balance sheets are cutting loose some of their greenbacks, declaring one-time distributions that will be payable this month.

And why not? The tax rate on qualified dividends that currently maxes out at 15% is set to nearly triple for some high earners. If a company has ever wanted to return money to its stakeholders, this may be the last month in a long time when it makes sense.

Not every company that can dig deep into its pockets is doing so, though. The country's most valuable and richest company has been somehow absent from the list of companies making these special declarations. What's Apple (Nasdaq: AAPL  ) waiting for?

First Bank of Apple
The Cupertino titan is good for the money. It closed out its latest quarter with more than $121 billion in cash and marketable securities on its balance sheet. That's nearly $128 a share in cash. Now, the lion's share of that money is docked overseas. Until repatriation rules ease -- and that's not likely to happen, given the government's hunger for revenue -- that's where the funds will stay.

Meanwhile, Apple's stash keeps growing. Even after finally coming around and initiating a quarterly dividend policy earlier this year, Apple is collecting more money than it needs. A year ago it had just $81.6 billion on its balance sheet in cash and marketable securities. The company generated more than $50 billion in operating cash flow over the past year, and it's going to crank out even more this new fiscal year.

The only two reasons for Apple's stinginess would be if it's gearing up for a major acquisition or if it's saving for a rainy day.

Well, let's bury any potential buyout chatter. Apple doesn't make needle-moving acquisitions. There have been nibbles here and there, but we've never seen the company attempt the big-ticket purchases that other tech titans have pulled off.

Microsoft (Nasdaq: MSFT  ) paid 10 figures for Skype, aQuantive, and Yammer. Google (Nasdaq: GOOG  ) shelled out more than a billion for Motorola Mobility, YouTube, and DoubleClick. In comparison, Apple has yet to make a deal bigger than its $402 million purchase of NeXT -- and that was 15 years ago.

That isn't to suggest that Apple should go on a shopping spree. I'm merely suggesting that Apple doesn't need to have so much money in its vault.

Tim Cook's big umbrella
What about that rainy day? If Apple was a cyclical company, holding on to its gobs of cash would be understandable.

Ford (NYSE: F  ) , for example, has a net cash position of $9.9 billion, but no one there is clamoring for a fat check. Investors have seen the exhilarating highs and crushing lows of the auto industry, and they're aware of the albatross of underfunded pension liabilities. Ford is a solid investment, but it will never be a consistent grower. Did you know analysts see Ford posting slightly lower sales and earnings this year?

There's no such dark cloud looming over Apple. Sure, Wall Street sees Apple's revenue growth slowing to 24% this new fiscal year and 15% the following year. But so what? The same can be said for Microsoft and Google.

No, Apple doesn't lack risks and challenges. Android can continue to gain global market share in tablets and smartphones, potentially at Apple's expense. Or a new mobile computing platform may emerge where Apple's iOS isn't a major player.

But again, so what? That's business. Las Vegas Sands (NYSE: LVS  ) doesn't have a problem returning $2.2 billion to its investors later this month in the form of a one-time distribution of $2.75 a share. Casinos have their ups and downs, and this operator's dependence on the gambling market in Macau introduces geopolitical risks.

The beat of its own drummer
Of course, Apple has defied conventional wisdom in the past -- and won. Most tech companies wouldn't dream of letting their stocks approach the triple digits without declaring a stock split. But Apple's not doing it.

Most large caps wouldn't dream of holding out on paying a dividend, but Apple became the country's most valuable company two years ago with a yield of nil. It wasn't until earlier this year that Cook moved to appease income investors in a way that Steve Jobs never did.

However, the clock is ticking on this particular event. Apple may very well declare a stock split next year, but it would be cruel to decide to return money to its stakeholders through a special distribution after this month's kinder tax rates are toast.

What are you waiting for, Apple? The countdown is on.

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Read/Post Comments (16) | Recommend This Article (33)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 02, 2012, at 11:17 PM, haysdb wrote:

    As a stockholder, I want Apple to keep doing what they're doing. I won't feel "cheated" if they don't declare a one-time dividend. I have no idea why they feel they need $120 Billion in cash, but I think you either trusty management or you don't, and if you don't, you probably shouldn't own the stock.

  • Report this Comment On December 03, 2012, at 7:20 AM, astralexis wrote:

    Google shelled out more than 10 billion for MMI actually.

  • Report this Comment On December 03, 2012, at 7:24 AM, astralexis wrote:

    I don't like dividends, because they get taxed. No dividend, no tax, problem solved.

  • Report this Comment On December 03, 2012, at 5:13 PM, s73v3r wrote:

    As an Apple stockholder, I'm actually glad to see them not jump on that bandwagon. This dividend stuff has gotten way out of control. You see companies selling off parts of their business, cutting R&D budgets, and doing other ludicrous things just to say they have "consistently paid a dividend." Most of this stuff is extremely short sighted, and can end up biting a company in the ass long term. Hell, Costco just took a huge loan just for the purposes of paying a special dividend. How does that help the business in any way? The only thing it does is give more money to the major stockholders at the expense of the business.

  • Report this Comment On December 03, 2012, at 5:35 PM, Comsense wrote:

    Isn't a large portion of their cash held overseas? Would a dividend cause a corporate income tax in the US?

  • Report this Comment On December 03, 2012, at 5:35 PM, EquityBull wrote:

    Apple pays the price of marching to its own drum. Growth of 20% plus and a PE ex-cash flow of 7. That is a sad multiple for a company growing like apple with its balance sheet.

    Reasons for this. No stock split. Meager dividend. Meager buyback. Poor capital allocation (cash losing 3%/yr to inflation - that is almost 4 billion in buying power destroyed annually).

    Keep marching to the beat of your own drum Apple. The market is not going to reward you in a fair way for this. You will hug the rails of absurdly low multiples while you march to this beat. Time for apple to think different and reward shareholders.

  • Report this Comment On December 03, 2012, at 6:05 PM, rayjayjj wrote:

    I'm waiting for MSFT to issue another special dividend before year end. Un like AAPL, MSFT has given special dividends in past years with great success.

  • Report this Comment On December 03, 2012, at 6:57 PM, sfojoe wrote:

    Apple doesn't actually have $120 Billion in cash available as much of it is offshore. The real value of that offshore cash is about 64% of the gross offshore cash figure. That is the amount they would actually have after tax if it is repatriated to the US.

  • Report this Comment On December 03, 2012, at 8:58 PM, zunguri wrote:

    Short answer: No.

    Longer answer: No. Repatriation expenses aside, it's not your call. If you don't like it, sell your AAPL and stop whining.

  • Report this Comment On December 03, 2012, at 9:58 PM, Robinhardaway wrote:

    Why would Apple want to declare a taxable dividend when instead it could let the stockholders reap a tax free, unrealized increase in the value of its stock based on the cash value implicit in the stock? Warren Buffet would never prefer the taxable option, when the non-taxable option is available. And why would Apple declare a stock split when it makes no difference in the total value of a shareholder's total holdings, would make calculation of capital increase more difficult, and cater only to those who like the illusion of holding more shares. Apple, please don't give a taxable dividend, and don't split.

  • Report this Comment On December 04, 2012, at 3:53 AM, HeyPacketMan wrote:

    Two things:

    1. If Apple can earn a better return on its cash hoard over the long term than Mr Market, then by all means, please do so. Otherwise, give the money back to investors who can put it to better use. Don't hold your breath because their culture is not about maximizing your ROIC. In my opinion, they only care about ownership to the extent they have to.

    2. Again, in my opinion, Apple seems disinterested in helping their owners or customers save on taxes. I think they have antipathy towards that kind of thinking even though they do it themselves by aggressively exploiting foreign tax shelters.

    Unlike Amazon, Apple has long embraced charging retail sales tax on online transactions and did so long before their brick and mortar retail presence made it a legal obligation. In my state, they go out of their way to collect county and city sales taxes when not required to do so under state law.

    Surely they knew this extra 7% to 10% tax cannibalized their high margin direct sales by driving customers to the less profitable (for Apple) online channel retailers like Amazon, but they did so anyway.

    When your corporate culture is about making "cool products that change the world", a decent ROIC becomes a side effect of achieving that goal, and should not be the goal itself. Supposedly, that's the lesson of the Sculley years and Apple's near death experience.

  • Report this Comment On December 05, 2012, at 9:56 AM, TMFMileHigh wrote:

    Hey everyone,

    I get the arguments for and against a dividend. Both have merit. Just don't base your pitch on the fallacy that Apple management does a poor job of capital allocation.

    Even if you believe Apple is doing a poor job of generating value from its cash hoard, return on assets (which, yes, includes all cash assets) was 23.6% in fiscal 2012 -- up sharply from 12.9% five years ago.

    The other two cash hoarders Apple is most often compared to -- Google and Microsoft -- earned 10.5% and 14.2% over the same period.

    Say what you will about Apple, but its earnings engine roars loud enough to deliver excellent returns on the capital shareholders provide.

    FWIW and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

    Twitter: @milehighfool

    Tumblr: http://timbeyers.tumblr.com/

  • Report this Comment On December 05, 2012, at 10:56 AM, 2022retiree wrote:

    The longer AAPL continues to not communicate what the long-term plan is for using this hord of stockholder money- the greater the speculation will be that APPL does not have a plan for its future. To Mr. Cook I ask that he tell us what he is planning to do with our money, and please do it soon.

  • Report this Comment On December 05, 2012, at 3:10 PM, mikecart1 wrote:

    Which would I want? Hmmmm... My shares of Apple to go from today's prices of about $550/share to $700+/share or a lousy 1-time dividend that will not be close to $50/share. I am no math whiz (actually I am lol) but $150 > $50.

    :)

  • Report this Comment On December 08, 2012, at 2:12 PM, linmarman wrote:

    To me, its an absurd statement 'Is Apple cheating you out of a fat dividend.' The benefit of this special dividend is to allow shareholders to avoid paying taxes. No benefit to Apple. No appreciation of stock prices, as dividend growth models would have to ignore this dividend, since it, by definition, could not be counted on to be repeated. 'Why isn't Apple satisfying my selfishness?' would be a more appropriate title. I don't mean to sound rude, but I would like the companies I own to think in the long term, and not disrupt the business with these gimicks.

  • Report this Comment On December 08, 2012, at 3:18 PM, RockyTopBob wrote:

    "Hell, Costco just took a huge loan just for the purposes of paying a special dividend. How does that help the business in any way?"

    That money was borrowed at near zero rates and if you noticed, COST stock jumped up in the market almost the entire price of the dividend the day it was announced. That's like having your cake and eating it too.

    The market is now expecting the dividend so by not paying it, Apple is hurting the price of the stock in the market.

    On splits, those trading options realize the benefit of a lower price considering one contract of 100 shares is $50,000-60,000. Back when Microsoft was the darling of the tech world it split often and each time the stock price rose right back to where it was pre-split and beyond. I know since I made over $1,000,000 on MSFT during that period.

    Regards,

    Bob

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