Apple has announced a share buyback and dividend. Funds will be raised through issuing bonds of $5.25 billion in five parts. Instead of having cash reserves, they will raise funds from investors because the cash reserves with them are for technological growth and unforeseen incidents. Apple is one of the most valuable companies in the world, so it might be issuing high grade points which means bonds with high credit ratings.
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Apple Inc. is an American multinational technology company headquartered in Cupertino, California. Apple is the world’s largest technology company by revenue, with US$394.3 billion in 2022 revenue. As of June 2022, it is the fourth-largest personal computer vendor by unit sales and second-largest mobile phone manufacturer. It is one of the Big Five American information technology companies, alongside Alphabet Inc., Amazon, Meta Platforms, and Microsoft.
Apple became the first publicly traded U.S. company to be valued at over $1 trillion in August 2018, then at $2 trillion in August 2020, and at $3 trillion in January 2022. As of April 2023, it was valued at around $2.6 trillion. The company receives criticism regarding the labor practices of its contractors, its environmental practices, and its business ethics, including anti-competitive practices and materials sourcing. Nevertheless, the company has a large following and enjoys a high level of brand loyalty. It has also been consistently ranked as one of the world’s most valuable brands.
Reason Behind Issuing Bonds
The first thing to understand is that Apple is sitting on a mountain of cash. And I’m not talking about a little hill or even a big hill. We’re talking about a Mount Everest-sized pile of cash. At last count, Apple’s cash hoard was over $200 billion. That’s a lot of zeros. But here’s the thing, having all that cash on hand isn’t necessarily a good thing.
You see, cash doesn’t earn a lot of interest these days. And with interest rates so low, Apple’s cash isn’t earning as much as it could be. By tapping into the bond market, it can borrow money at a low-interest rate and use that money to invest in their business or pay out dividends to shareholders.
Another reason why Apple might be turning to the bond market is that they’re looking to fund their stock buyback program. In case you’re not familiar, a stock buyback is when a company buys back its own stock from the market. By reducing the number of outstanding shares, a stock buyback can boost the value of the remaining shares. And with Apple’s stock price soaring, it’s no wonder they’re looking to buy back some of their own stock.
But why go to the bond market instead of just using their cash reserves? Well, buying back stock can be expensive. And Apple’s cash reserves are better suited for other purposes, like investing in new technologies or acquiring other companies. By issuing bonds, it can raise the cash they need for their stock buyback program without depleting their cash reserves.
So, what can we take away from all this? Well, for one, it’s clear that Apple is always looking for ways to put their cash to work. And with interest rates so low, it makes sense for them to turn to the bond market. But at the end of the day, It’s financial moves are all about staying ahead of the game and maintaining their position as one of the most valuable companies in the world. And hey, if they can make a few bucks along the way, all the better!
What’s Going On?
According to a new regulatory filing, Apple has filed for a five-part notes offering. The size of the offering was not disclosed in the prospectus supplement. The notes are split into five different categories by due date: 2026, 2028, 2030, 2033 and 2053. Apple said it intends to use the net proceeds for general corporate purposes, which includes repurchases of its common stock, payment of dividends, working capital, capital expenditures, acquisitions and repayment of debt.
Last week, Apple reported better-than-expected second quarter results. Several analysts raised price targets on the stock following the print. Apple shares traded up from around $165 to $173 toward the end of last week. The stock is currently hovering within striking distance of its 52-week high.