Is Apple Inc (AAPL)’s Cash Hurting Shareholders?

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Low leverage discount

Because Apple has maintained such a large cash pile, it has missed out on the tax benefits of issuing debt.

Other technology companies have been experimenting with leverage. Last November, Microsoft Corporation (NASDAQ:MSFT) sold $2.2 billion in long-term debt to fund its dividend and share buyback program. Notably, the company issued 30 year bonds with a yield of less than 3.5% per year. By taking advantage of the low interest rate environment, Microsoft can reduce its cost of capital and unlock shareholder value.

A $50 billion debt issue could provide a quick price pop for Apple Inc. (NASDAQ:AAPL) shares. But my argument  against this has always been to maintain financial flexibility. For the sake of a quick buck, a debt issue could bind the company if it finds itself on the wrong side of the next industry shift.

Should Apple even return the cash?

Here’s the crux of this debate: Would you rather own $450 dollars of Apple stock or $350 of Apple Inc. (NASDAQ:AAPL) stock plus $100 cash?

In most cases I would lead the charge for higher dividends or buybacks. Most management teams can’t resist the temptation to squander capital on wasteful side projects and empire building acquisitions.

But is that the case with Apple?

No, Apple has proven itself to be a good steward of shareholder capital. Of course, even Tim Cook has admitted he can’t find a productive use for $150 billion. But at the very least, if Apple holds on to its cash there’s always the possibility of a tax holiday.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple, Microsoft, and Netflix.

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