Apple expected to return $100bn to shareholders

Announcement from iPhone maker expected this week alongside quarterly earnings

An iPhone X is seen on a large video screen in the Apple Visitor Center in California. Photograph: REUTERS/Elijah Nouvelage/File Photo

An iPhone X is seen on a large video screen in the Apple Visitor Center in California. Photograph: REUTERS/Elijah Nouvelage/File Photo

 

Apple plans to return an extra $100 billion 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 $163 billion 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 $450 billion by 2020.

After resuming dividend payments and instituting a share buyback scheme in 2012, Apple has added between $30 billion and $50 billion 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 $300billion by March 2019.

Analysts at Morgan Stanley estimate that Apple could announce a $150 billion increase to that sum on Tuesday.

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 analysts

“This would imply Apple repurchases $210 billion in shares and pays $52 billion in dividends over the next three years,” the bank said in a recent note to clients, adding that this would still leave about $30billion 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 $100 billion increase while RBC Capital Markets predicts an extra $80 billion to $90 billion 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 $50 billion 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 $325 billion 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 $61 billion, after selling an estimated 54 million 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.

Morgan Stanley recently slashed its forecast for iPhone sales in the June quarter to 34 million, implying a 17 per cent year-on-year decline.

- Copyright The Financial Times Limited 2018