The large cash hoard per share at the Cupertino technology giant has been much talked about, however investors consistently forget that the bulk of the cash balance actually sits in foreign subsidiaries which makes it unusable by the company for corporate dividends or share buybacks. By our calculations, Apple’s $144.00 per share in cash on its balance sheet breaks out to $100.80 per share in foreign cash (profits that have been earned abroad and thus have not been taxed by U.S. authorities and are not useable for corporate purposes other than foreign acquisitions). The remaining cash balance of $43.20 per share sits net of U.S. taxes and thus is available for corporate uses including dividend increases, share buybacks, or domestic acquisitions. This is actually the cash available to source dividend increases, not the $144 per share amount. The company currently pays $10.60 per share in annual dividends for a current yield of 2.2% currently, or roughly 25% of the $43.20 per share domestic cash balance.
The most important number in our per share analysis, however, is the forward free cash flow yield per share for Apple which for 2013 is $44.90 per share. This number is simply the company’s estimated cash flow from operations for the upcoming year less its capital expenditures (what it needs for spend for capital equipment, property, etc.). This means that Apple’s cash hoard of over $144 per share will be over $188 per share by the end of this upcoming fiscal year. Putting this cash flow amount per share over the current Apple stock price gives the company a free cash flow yield of 9.7%, a mobile industry best, above competitors Blackberry (BBRY) and Nokia (NOK). However, when looking at other tech giants that are facing a similar maturing business to Apple, this cash flow yield actually trails the 11.5% cash flow yield at Microsoft (MSFT) and the 9.7% generated at Cisco (CSCO). Thus Apple is a leader in cash generation amongst mobile companies, but is just behind other mature tech giants which could provide for some caution by AAPL management when paying out additional cash to shareholders.
Whilst many investors are expecting a substantial increase in dividend payout by Apple, we note that the company’s cash resources need to be adjusted for the very different foreign and domestic cash levels. In addition, when looking outside the scope of its direct competitors in the mobile industry, Apple actually generates similar percentages in free cash flow to other mature tech giants including Microsoft and Cisco. Thus, we estimate the company could increase its dividend to a $15 per share annual level comfortably to move to a 3.2% annual yield, but not much more. This 40% dividend increase from the $10.60 per share level is a solid advancement, however it may trail some expectations by other investors and analysts that aren’t factoring in foreign cash levels and other mature tech company cash flow yields.
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