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Apple Borrows $8.5 Billion for Dividends, Stock Repurchase

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Apple (NASDAQ:AAPL) tapped the debt market to shore up its liquidity. The company borrowed $8.5 billion through bonds sale, which allows it to take advantage of the low interest rate and raise cheap capital.

In March, the Federal Reserve slashed its benchmark interest rate as part of the efforts to minimize COVID-19’s economic impact. So far, the outbreak has weighed on Apple’s business. The company had to lower its revenue expectations after COVID-19 forced it to close its retail stores. The pandemic has also cast doubts on Apple’s annual iPhone refresh plans. The company might have to delay the release of this year’s flagship iPhone models—the iPhone 12 series.

Apple’s borrowing follows moves by other companies like Walt Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) to tap the debt market. Disney has raised about $7.3 billion through bonds sale. The pandemic has forced Disney to halt certain operations, which hit its cash flow and raised the need to generate capital in other ways.

Apple borrows to fund dividends and stock repurchase program

Apple’s latest borrowing saw it sell bonds turning in three to 30 years. The company said it intends to use the borrowed funds to finance dividend payment and stock repurchase.

Apple pays regular dividends. The company plans to repurchase up to $90 billion of its stock under the existing program. The board authorized a fresh $50 billion repurchase program. Notably, the new repurchase authorization adds to over $40 billion remaining under the existing program.

The company returned $22 billion to its shareholders across stock repurchases and dividends in the March quarter.

Apple’s new $8.5 billion borrowings will help boost its cash reserve at a critical time. The pandemic has left companies with rising costs amid weak sales. Apple finished the March quarter with $193 billion in cash and $110 billion in debt.

Notably, Apple’s borrowing comes after the company delivered March quarter earnings that beat the consensus estimates.

Investing in Apple stock

Investors dumped Apple stock in February and March at the height of coronavirus infections in China and the US. At $293 per share right now, Apple stock has rebounded more than 70% from its pandemic lows. However, the stock still trades at nearly an 11% discount to its 52-week peak.

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