Apple's Tale of Two Asset Classes
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 continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Escalation With Russia Just Became More Likely
- Elon Musk Is the Henry Ford of His Age. That's Bad.
- Trump’s Plan to Punish the U.S. Economy
- What Bolton Should Know About Working for Trump
- Is Trump Playing Into Xi's Hands?
- Jared Kushner's Dreams of Mideast Peace Are Alive
- Don't Count On Jeff Sessions Protecting Mueller