Get Ready For Apple iBonds

tim cook apple

Apple announced today that it would crank up its quarterly cash dividend by 15% to $3.05 per share, and it would expand its share buyback plan by $50 billion to a total of $60 billion.

Perhaps the most interesting thing about this ramp up in its capital return plan is that it will finance some of it by borrowing money.

“In conjunction with the expanded return of capital program, the Company plans to borrow and expects to announce more details about this in the near future,” said management.

This means that Apple could soon offer bonds.  We’ll call them iBonds.

This will be a welcome development for bond investors looking for a higher yield in this extremely low interest rate environment.

Already, S&P has given the company an AA+ rating and Moody’s has blessed it with an Aa1 rating.  Both say that their outlooks for the company are stable.

The idea of debt tends to raise the average eyebrow.  But in the corporate world, it comes with numerous benefits.  The cost of debt is cheaper than the cost of equity.  Also, interest lowers a company’s taxable income.

Overall, this seems to be a smart move by Apple.

Earlier this year, legendary NYU finance professor Aswath Damodaran discussed this as one of the four things that could make Apple a hot stock again:

4. Behave consistently with your choice: Once Apple makes its stand as a growth or mature company, it has to behave consistently. Thus, if it decides that it is a mature company, it should return more cash to its stockholders, though I think stock buybacks make more sense to its stockholder base now than dividends do. At the moment, with its huge cash balance, it clearly does not make any sense for Apple to borrow money, but somewhere down the road, it has to consider the debt option, since not using it is depriving itself of the tax benefits embedded in the tax code for using debt instead of equity.

As Apple said, more details will come in the near future.

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