Apple
will likely update on its capital allocation program in March/April
2015, when it could increase its dividend and buyback.......
As we reported on Monday, Apple Inc. (NASDAQ:AAPL) has issued Euro-denominated bonds to raise €2.8 billion. The tech giant issued €1.4 billion of bonds due 2022 that would yield 1.082% interest. Another €1.4 billion of 12-year notes (due 2026) carry an interest rate of 1.671%. By comparison, the 10-year U.S. Treasury notes have an interest rate of 2.33%.
Apple said in an SEC filing that the interest will be paid every year on
Nov.10 starting 2015. It’s the first time the Cupertino giant has
issued bonds in a currency other than the U.S. dollar. Apple was able to
get such low rates due to two reasons. One, the iPhone maker is rated
Aa1 by Moody’s and AA+ by Standard & Poor’s. Apple’s strong credit
rating reassured bond investors.
RBC Capital Markets said Apple will update on its capital allocation
program sometime in March/April next year, when it could increase its
dividend and stock buyback. In the last two years, Apple has
returned more than $90 billion to shareholders. RBC Capital Markets has
an Outperform rating on the stock with $115 price target.
As we reported on Monday, Apple Inc. (NASDAQ:AAPL) has issued Euro-denominated bonds to raise €2.8 billion. The tech giant issued €1.4 billion of bonds due 2022 that would yield 1.082% interest. Another €1.4 billion of 12-year notes (due 2026) carry an interest rate of 1.671%. By comparison, the 10-year U.S. Treasury notes have an interest rate of 2.33%.
Apple takes advantage of record low rates in Europe
Apple said in an SEC filing that the interest will be paid every year on
Nov.10 starting 2015. It’s the first time the Cupertino giant has
issued bonds in a currency other than the U.S. dollar. Apple was able to
get such low rates due to two reasons. One, the iPhone maker is rated
Aa1 by Moody’s and AA+ by Standard & Poor’s. Apple’s strong credit
rating reassured bond investors.
Two, borrowing costs in Europe
have fallen to a record low. Ten-year German bunds yield a meager 0.84%.
Apple’s bond offering came at the right time to take advantage of the
low interest rates. Last year, Apple sold bonds worth$17 billion,
followed by another $12 billion bond offering in April this year. RBC
Capital Markets analyst Amit Daryanani said in a research note that the
bond sale was done by a “U.S.-based entity.” That means Apple will get
the proceeds of the offering in the U.S.
Daryanani
said there should be no repatriation issues with these proceeds. Apple
will use the proceeds on stock buybacks and dividends. The company
has more than $155 billion in
cash. But $137.1 billion (or 88%) of its total cash reserve is held
overseas. If the company brings part of its cash to the U.S., it will be
subject to repatriation taxes. So, raising funds in a bond offering and
bringing them to the U.S. without any repatriation taxes was a better
alternative.
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