Apple, With Net Cash of $57 Billion, Plans Five-Part Bond Sale Following Buyback, Dividend Boost

Apple  (AAPL) – Get Free Report unveiled plans Monday to sell at least five different bonds over the coming weeks, with reports suggesting it could raise as much as $5 billion, following the tech giant’s newly-minted $90 billion share buyback. 

Apple will issue five different bonds with maturities ranging from two to thirty years, according to a prospectus filed Monday with the U.S. Securities and Exchange Commission, with media reports indicating the longer-termed portion of the sale could pay investors as much as 1.35% more than comparable U.S. Treasury bonds.

That likely means a coupon on Apple’s longer-term bonds of around 5%, a level that would generate an annual return that is slightly higher, based on the ultimate pricing on the bond by the company and its underwriters as they assess market demand over the coming days.

Apple’s last bond sale, which came in August of last year, raised around $5.5 billion — with overall orders peaking at $23 billion — and included 40-year paper that paid investors 1.18% over Treasury bonds. Apple used the cash to fund buybacks and dividends

While it’s likely that Apple could use some of the proceeds to fund shareholder returns, it’s difficult to argue that Apple is in any way short of cash. 

Alongside its second quarter earnings, which were published last week, Apple said operating cash flows were pegged at $28.6 billion, up 1.4% from last year, as better-than-expected iPhones sales powered overall group revenues of $94.84 billion.

Apple: iPhones, Emerging Markets Power Q2 Earnings Beat, Dividend Boost; Stock Jumps

Other reports suggested Apple drew in as much as $990 million from customers signing up for its recently-launched Apple Card Savings account, which will be administered by Goldman Sachs Group GS. The accounts, which are linked to individual Apple Cards, pay an annual percentage yield of 4.15%  

“We’re helping people have a better financial health,” said CEO Tim Cook. “Things like the Apple Card, and the fact that it has no fees, like the savings account, which has a it’s very attractive yield … we are very pleased with the initial response on it. It’s been incredible.”

The group reported around $166.3 billion in cash and investments on its balance sheet as of March 31, down from its late 2017 peak of $250 billion but still, when set against a balance sheet comprised of only 4% debt, a large and to some analysts inefficient pile that could be put to work elsewhere. 

Last week, Apple said it would boost its annual dividend by a penny, to 24 cents per share, while authorizing the repurchase of another $90 billion in shares and vowing to “maintain our goal of getting to net cash neutral over time.”

“We repaid $2.3 billion in maturing debt and increased commercial paper by about $300 million, leaving us with total debt of $110 billion. As a result, net cash was $57 billion at the end of the quarter,” CFO Luca Maestri told investors last week. 

“During the March quarter, we returned over $23 billion to shareholders, including $3.7 billion in dividends and equivalents and $19.1 billion through open market repurchases of $129 million Apple shares.”

Last week, Apple shares surged to the highest levels in more than a year after it topped Street forecasts for its March quarter earnings, thanks to a surprise 1.5% gain in iPhone revenues and record sales from a host of emerging markets and said current quarter sales would only slip modestly from last year’s levels.

Billionaire investor Warren Buffett, in fact, told his annual meeting of Berkshire Hathaway  (BRK.A) – Get Free Report shareholders Saturday that he would be happy to add to his 5.6% stake in the group — valued at around $159 billion and around a third of the Berkshire portfolio — and called the iPhone maker not only “different than the other businesses we own” but also “a better business.”

“We put a fair amount of money in Apple … and the company has a position with consumers who pay $1,500 for a phone and $35,000 for a second car. But they’d rather give up the second car than the iPhone. It’s an extraordinary business.”

Apple shares were marked 0.05% higher in early Monday trading to change hands at $173.63each, a level that would leave the stock up more than 38% for the year and value the tech giant at just over $2.74 trillion.