Apple Inc. (AAPL): Beg, Steal, or Borrow

Apple Inc. (NASDAQ:INTC)Don’t be lulled into complacency by Apple Inc. (NASDAQ:AAPL)‘s 7% pop this past week. The current quarter is shaping up to be horrendous. Dreams of seeing Apple innovate its way out of its current rut are apparently at least months away from materializing. Oh, and then there’s the tech bellwether’s vow to take on new debt in an ambitious plan to return more money to its stakeholders.

Washington Post columnist Allan Sloan points out that the ultimate advantage of having Apple Inc. (NASDAQ:AAPL) borrow money to bankroll its beefed-up $60 billion share-buyback authorization rests in the taxable implications of the strategy.

It does makes sense on paper. Apple Inc. (NASDAQ:AAPL)’s stock is now yielding 3%, and its creditworthiness would probably mean that it could take on debt in this low-interest-rate environment at about the same rate. Sloan then rightfully points out that the interest Apple will pay on the debt is tax-deductible. Dividends suffer the double-taxation hit of smacking corporations and then recipients. In short, borrowing money at 3% to buy out shares yielding 3% will save Apple — and its stakeholders — money.

However, this still doesn’t address the matter that Apple Inc. (NASDAQ:AAPL) does have the money itself. Yes, two-thirds of its $145 billion cash position is stashed away overseas, and the government’s tax laws on repatriated funds will keep it that way. That still leaves a lot of money for it play with on these shores, and Apple continues to print greenbacks with every passing quarter. Even with margins and profitability contracting this past quarter, Apple Inc. (NASDAQ:AAPL) still managed to generate $12.5 billion in cash from operations. Yes, a lot of that is being generated overseas, but the point is simply that Apple continues to pad its balance sheet with the money it would need to return money to its stakeholders.

Apple can’t buy its way out of this rut
In the end, it’s not as if bigger dividends and aggressive share buybacks will cure Apple’s woes. Sure, the dividend increase will woo income investors, and the stock repurchases will pad profitability on a per-share basis. But at the end of the day, Apple’s fundamentals will have to improve for investors to truly believe in Apple again.

The new quarter is going to be a mess. Apple Inc. (NASDAQ:AAPL)’s top-line range suggests that year-over-year revenue growth will be flat during this fiscal third quarter.