Apple takes advantage of the record low yield debt financing
As of March 2013, it had $135.5 billion in total stockholders’ equity, around as much as $145.5 billion in total cash and investments, and no debt at all. According to Dealbook, with that cash amount, Apple could buyout Facebook Inc (NASDAQ:FB), Yahoo! Inc. (NASDAQ:YHOO) and Hewlett-Packard Company (NYSE:HPQ) combined. The company has been growing itself organically, as the goodwill and intangible assets stayed at only around $5.6 billion.
Recently, Apple Inc. (NASDAQ:AAPL) said that it would distribute the huge amount of much as $100 billion in cash to its shareholders in the next two years through share buybacks and dividends. Apple will boost its share repurchase amount by $50 billion to $60 billion. At the same time, it raised its dividend by 15% to $3.05 per share.
Interestingly, Apple Inc. (NASDAQ:AAPL) might not fund all of its dividends and share repurchases with its cash on hand. It will also use debt financing to take advantage of the record low interest. Apple has been on track to raise as much as $17 billion by selling its bonds with a rate equivalent to the highest rated triple A firms in the world. A bond offering was divided into six-part at fixed rate yields in the range of 0.511% to 3.883%.
Microsoft Corporation (NASDAQ:MSFT) – higher credit rating but same debt financing yield
In the middle of April, Microsoft Corporation (NASDAQ:MSFT) had also raised $1.95 billion worth of bonds maturing in three-year, ten-year, and 30-year terms with yield ranging from 1.013% to 3.828%. What investors should take notice is that Microsoft has a better rating than Apple.
Despite a debt-free balance sheet, Moody’s ranked Apple Inc. (NASDAQ:AAPL) a level below its top investment grade, Aa1, while S&P ranked it at AA+. According to Gerald Granovsky, it was due to the risk of “shifting consumer preferences.” Thus, with a lower grade, Apple should have offered higher yields than Microsoft.
Microsoft has a weaker balance sheet than Apple. As of March 2013, it had nearly $76.7 billion in equity, $74.5 billion in cash and short-term investments, nearly $11.2 billion in long-term investments, and more than $14.2 billion in both long and short-term debt.
I like the fact that most of Microsoft Corporation (NASDAQ:MSFT)’s operating income, $15.7 billion, was generated from the Microsoft Business Division, including Microsoft Office and Microsoft Dynamics. The Microsoft Business Division’s revenue was generated mainly from sales to enterprise customers, who could be considered to be quite sticky and generate a stable recurring revenue stream for the business.
Samsung spends a lot on R&D
Quantitatively, investors could benefit much more from Apple Inc. (NASDAQ:AAPL)’s capital plan. However, what worries some investors is its low R&D spending. Although in the past five years, its R&D expenses increased from $1.1 billion in 2008 to nearly $3.4 billion in 2012, the percentage of R&D over its total revenue has been declining. In 2012, its R&D expenses accounted for only 2.16% of the total revenue.
