According to Kulbinder Garcha, the credit Suisse analyst, Apple should spend $200 billion in next three years for stock buyback and dividend. Though it sound impractical but Garcha has given reasons behind it.
Apple’s board of director has announced that $130 billion will be returned to their shareholders by repurchase and dividends. Out of this $130 billion, $90 billion will be used for stock buybacks out of which $68 is already been spent in the last year. And on the rest $22 billion that is authorized for repurchase, Apple is providing updates continuously.
This cash return program to shareholder was started by Apple in 2012 but the question is that whether they will be able to make the amount $200 billion by 2016 or not. Garcha explained that if Apple does not boost the Cash return program to $200 then the net cash would be 184$ by the end of 2016 which is almost double of what was at the end of 2012. He also said this technology giant would find it quite tough to justify this cash level.
If it is assumed that Apple spent $165 billion for repurchase and $37 billion for dividends still the company would have a net cash of $114 billion by the end of 2016 that is equivalent to 18% of Apple’s $647 billion market capitalization. So where from Apple would get this much money?
Apple’s annual free cash flow is $50 billion. Also the hefty cash flow and the impossible to ignore cash hoard that is about $130 billion in 12 months are the main reasons that can help Apple in achieving the target.
But Apple’s domestic cash inflow is only 18% so it is obvious that they need to carry more debt to make such program possible.
Apple’s watch that was announced by the Apple CEO Tim Cook will also have a great role in this big cash return program.