Analysts say shareholders could win big from Apple's overseas cash repatriation

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Apple's plan to repatriate the majority of its overseas cash holdings to the United States will majorly benefit its shareholders, analysts claim, with the company expected to use part of the cash influx to increase its share buyback programs and significantly boost dividend payments.

Speculating on what Apple will do with most of the $252.3 billion in cash it holds overseas that it will bring to the U.S. following changes in the U.S. tax code, analysts told the Wall Street Journal to expect a boost to Apple's bottom line through the cut to its effective tax rate, as well as an acceleration in share buybacks. Some also hope the spare cash will also increase Apple's research and development spending and to increase its rate of acquisitions.

Shareholders stand to benefit considerably, based comments made by Apple finance chief Luca Maestri last year suggesting repatriating cash would provide more flexibility in returning money to shareholders, though with little in the way of plans provided since. Apple already repurchases shares and have provided dividends to its shareholders, reportedly spending $234 billion on its efforts since fiscal 2012, though last year it announced ambitions for that total to reach $300 billion by March 2019.

According to venture capital firm Loup Ventures, it expects Apple to announce an increase in buybacks and dividends worth between $125 billion and $150 billion through to 2020, bringing the total spend up to as much as $450 billion. The firm puts $88 billion of the increase down to changes to the tax system, with $71 billion towards buybacks, $12 billion for a one-time special dividend, and a $5 billion increase to dividends for two years.

Loup Ventures managing partner Gene Munster suggests "I think they have struck the right balance between the fat cats and the everyday person" on the figures. While investors will benefit from the aforementioned $88 billion, Apple has also announced plans to contribute around $75 billion into the U.S. economy through investments in manufacturing, capital expenditures, and a $38 billion tax commitment.

Munster also notes Apple has other ways it can spend its cash haul, suggesting it could use it to pay off the $116 billion debit it has, which has been used to fund existing share buyback efforts. Apple could also decide to do nothing, and hold onto as much of its cash as possible.

Shareholders will also benefit from the lower effective tax rate, granted through the changes to the tax code. According to University of Pennsylvania's Wharton School accounting professor Jennifer Blouin, Apple reported an effective tax rate of 25 percent for the previous three years, and estimates the current rate is close to 18 percent, consisting of 42 percent for combined federal and state taxes on U.S. profits for a third of the figure, and 6 percent on overseas profits for two thirds.

Blouin expects the effective tax rate to reduce to around 16 percent, with the declining U.S. tax rate offsetting new higher taxes on some foreign profits.

Some investors told the report they expected Apple to use some of the cash to avoid becoming too reliant on iPhone-derived revenue, with the smartphone providing approximately two thirds of sales for the company. Part of this could be through increased research and development spending, which rose to $11.58 billion last year, and though this is on a par with its other technology rivals, Apple's spending is at a proportionally lower rate when taking revenue into account.

The shift in reliance from the iPhone could also be performed via an increase in acquisitions. While there are many large potential acquisition targets that could be bought with the cash, such as Netflix, Apple has typically kept itself from such high-value purchases, with the $3 billion spent on Beats an exception to Apple's typical buying habits.


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