Barclays Ben Reitzes today reiterates an Overweight rating on Apple (AAPL) shares, and a $530 price target, while writing that “pressure from shareholders and a significant amount of excess cash on the balance sheet is making Apple consider a much more significant shareholder return strategy.”
Adds Reitzes, “In line with our previous comments, we believe Apple should now be strongly considering tapping the debt markets to “borrow against” the significant overseas cash position.”
Apple should consider issuing $50 billion in bonds, he writes.
Apple’s first dividend announcement came a year ago this month, notes Reitzes, with the first payout having come in the September quarter of last year. (The company had previously paid a dividend up until December of ’95, he notes.)
At $10.60 per share annually, that dividend offers a roughly 2.5% yield. Apple should lever up to boost its dividend to 3.5%, or more than $14.75 per share annually;
Even without borrowing, we believe that Apple has room to increase its total cash outlay for dividends and buybacks over the next three years. However, borrowing could really change the situation, adding meaningful upside or flexibility to that level. Should Apple tap the debt markets, we believe the company could borrow up to $50 billion technically “against” existing international cash if it wanted to. Even though this issuance could be very large, we believe the market would back such an issuance at a very attractive rate for Apple considering the debt could still be repaid with existing international cash balances after assuming a 35% tax rate for repatriation. Based on precedent set by other maturing companies in our space, like IBM, we believe Apple would be able to borrow at very attractive rates � perhaps below 2%.
Reitzes offers the following graphic of how a dividend scenario could play out with $50 billion in bond issuance:
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