Wish you'd bought one of these instead of the bonds? Photographer: Ron Antonelli/Bloomberg

Apple's Tale of Two Asset Classes

Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Investors who bought into Apple Inc.'s record $17 billion bond sale a year ago have a plateful of news to digest after yesterday's earnings report.

The good news is that iPhone sales are still going gangbusters, driving net income and revenue higher. The bad news is the extension of the company's share buyback program, suggesting either Apple can't think of a better use for its cash or is increasingly afraid of a renewed assault by activist investors. Either scenario suggests Apple will continue to treat its shareholdersbetter than its bondholders.

If you lent to Appleby buying its 2.4 percent notes repayable in May 2023, you've lost money. According to prices on the Bloomberg terminal, you're down a bit more than 7 percent. If you took an even longer-term view by investing in the 3.85 percent bonds due May 2043, your losses exceed 10 percent.

Shareholders, by contrast, have made almost 30 percent in the year since Apple announced $100 billion of dividends and share repurchases. Yesterday, Apple said it will expand that buyback program by $30 billion. Because much of the company's $150 billion cash pile is overseas, and bringing that money home entails U.S. taxes of as much as 35 percent, more bond sales are the most likely way to fund the enlarged equity-buying plan.

Apple is rated Aa1 at Moody's and AA+ at Standard & Poor's, both with a stable outlook, putting the company just one step below the top investment grade on both scales. The $17 billion it owes bondholders is dwarfed by its market value of about $488 billion. Nevertheless, the bond market action suggests Apple shareholders will continue to fare better than its bondholders.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at magilbert@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net