It’s hard to think of a bigger corporate cash-machine on the planet than Apple, which has reported another earth-shaking $100 billion in stock buybacks for its shareholders.
Warren Buffett has noticed. The chairman of Berkshire Hathaway has doubled down on Apple, buying 75 million more shares in the first quarter of 2018. That is on top of the 165 million shares he already owned.
Buffett revealed his growing stake in the technology company during an interview with CNBC Squawk Box co-anchor Becky Quick.
The value of Buffett’s Apple stake is now $42.5 billion, making him the third-biggest shareholder in the company behind Vanguard and Blackrock, according to CNBC.
Apple’s share price touched an all-time high of $184 Friday, pulling the Dow Jones industrial average up with it.
Apple spent $22.8 billion buying back its shares in just the first three months of 2018, a record for a U.S. company. Apple is responsible for nine of the 20 largest quarterly stock buybacks in S&P history.
Thought of another way, the $22.8 billion Apple spent on its first quarter stock buyback is enough buy any of 275 companies in the Standard & Poor’s 500-stock index.
Not only that, but Apple on Tuesday’s earnings call announced plans to buy back another $100 billion in stock into the future, although it did not set a specific time frame.
Apple also said it is raising its dividend from 63 cents to 73 cents per quarter, which amounts to a dividend increase of $2 billion annually.
Apple’s $2 billion annual dividend increase is greater than what 450 of the S&P 500 companies pay in an annual dividend for the entire year, according to Howard Silverblatt, a senior index analyst with S&P Dow Jones Indices. Ninety of those 450 companies, including Berkshire Hathaway, pay zero dividend.
Because of its size and the number of shares, Apple will be paying more in dividends — $14.8 billion annually — than any company in the S&P 500. All told, the S&P companies currently spend $448 billion a year in dividends, according to Silverblatt.
“Apple is the poster child for returning value to shareholders,” Silverblatt said.
Critics are in a lather over that kind of financial force, especially in light of the ongoing debate over the uneven distribution of wealth in the United States.
Sen. Tammy Baldwin (D-Wis.) earlier this year introduced legislation that would end the ability of corporations to buy back their stock on the open market, though repurchases through tender offers that are subject to greater disclosure requirements would still be allowed.
Unlike dividend payments, which register as income and have immediate tax consequences, stock buybacks offer a big upside for shareholders. Think of a pizza redivided from eight slices to six. It is still the same size pizza, but your slice just got bigger because there are fewer slices. The shareholder doesn’t pay taxes until selling the shares, which could be years.
Some say Apple should spend less on buybacks and more on its employee benefits and pay. They also want Apple to hire more people, spend more on retail stores and even pay more taxes — Apple is the biggest U.S. taxpayer — to make up for the wealth that the company enjoys.
“This shows Apple has more capital than it knows what to usefully do with,” said Jared Bernstein, who served as the economic adviser to Vice President Joe Biden. “All we are doing here is exacerbating our large inequality problem because the buybacks and dividends mostly accrue to a narrow slice of the wealthiest households.”
Actually, many pension funds, mutual funds, foundations and institutions benefit from Apple’s financial success. And the technology giant spent $120 billion over the past 6 and 1/2 years investing in research and development and capital projects.
In the fiscal year ending Sept. 30, 2017, it spent $11.6 billion on research and development and $14.9 billion on capital expenditures such as tools, equipment, offices, technology hardware and software and its retail stores.
Apple said it expects its tax bill to grow by $38 billion when it repatriates its money from overseas holdings under the new tax law that President Trump signed in December.
Apple expects to invest more than $30 billion in capital expenditures in the United States over the next five years and create 20,000 new jobs through hiring at existing campuses and opening a new one. (It has 84,000 U.S. employees.)
Apple earned more than $48 billion in net income in its last fiscal year. Apple has reported that it spent $50 billion last year — and expects to spend $55 billion this year — on domestic suppliers and manufacturers. It has estimated that its direct contribution to the U.S. economy over the next five years will be more than $350 billion.
Analysts say the company is in an enviable position: With $267 billion in cash (it has $122 billion in debt), it has more money than it can put to productive use.
“Apple has more cash than what it needs to run the business in terms of research and development and capital expenditures,” said Brian Colello, a Morningstar analyst and its director of technology research. “It makes sense for Apple to give some excess cash back to shareholders.”
Morningstar’s Colello said that Apple’s attitude toward distributing value to shareholders under chief executive Tim Cook is less conservative than it was under the late Steve Jobs, Apple’s co-founder, chairman and the company’s guiding force until his death in 2011.
“It was a common complaint when Steve Jobs was running the company that it was building up its cash and was not paying it back to investors via dividends or buybacks,” Colello said.
“Apple had essentially faced a near-death experience under Steve Jobs and wanted to maintain an extremely conservative capital structure,” Colello said. “We still think of Apple as being conservative and remembering those near-death experiences. But the company still has far more cash than it needs at the moment and is a long way from reaching those depths.”