2 Challenges Apple Inc. (AAPL) Faces With Boosting Its Dividend

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Plugging all of those figures into the above equation puts Apple’s estimated cost of equity at 10.47%.

If you look at the current interest rate environment, which remains at historic lows, Apple would be able to borrow domestic cash for incredibly cheap. Fellow tech blue chip International Business Machines Corp. (NYSE:IBM) borrowed $1 billion just this month at a fixed rate of 1.25%, in addition to another $1 billion in floating rate notes.

The point is that Apple would be able to easily trade out expensive equity capital for cheaper debt capital by issuing debt at low rates and repurchasing shares where investors are demanding much higher returns.

What’s the largest tech company on Earth to do?
At this point, a modest dividend increase doesn’t seem like it will satisfy investors, and Apple may need to announce a big increase in its dividends and buybacks. How will it address these two challenges?

The article 2 Challenges Apple Faces With Boosting Its Dividend originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple and Cisco Systems (NASDAQ:CSCO). The Motley Fool owns shares of Apple, International Business (NYSE:IBM) Machines, and Microsoft.

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