Apple's Cash Position Is Shrinking, Leading To More Billions In Rain For Investors

It is time for Apple Inc.'s annual dividend and buyback update, typically released alongside the company's March-quarter earnings report. Analysts predict another lucrative payout for investors when Apple AAPL, -0.86% publishes its results later this week. In 2022, Apple increased its buyback program by $90 billion while raising its quarterly dividend by 5%.

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 Morgan Stanley's Erik Woodring believes that the company will make a similar move this year to achieve its goal of becoming net-cash neutral over time.

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Apple's balance of $165 billion in cash and marketable securities is often cited as a sign of the company's strength, but it does not take into account the debt incurred when the company paid dividends and repurchased shares by borrowing rather than bringing cash back to the US from abroad. 

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As of the end of December, Apple still had $111 billion in debt, leaving it with a net cash position of $54 billion. According to Woodring, if Apple continues its recent pattern of shareholder returns and reinvestment, it could achieve its net-cash-neutral target in about 3.5 years.

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BofA Securities analyst Wamsi Mohan predicts that Apple will increase its dividend by 5% to 24 cents a share, while also expecting a slightly smaller $80 billion increase in the buyback authorization. However, he questions whether Apple is doing enough to reduce its net-cash position.

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While Apple used to hoard even larger amounts of cash, Chief Financial Officer Luca Maestri announced in 2018 that the company would begin reducing its net-cash balance, which then stood at over $160 billion. Although there is speculation about potential large-scale acquisitions, Maestri has emphasized the company's focus on shareholder returns.

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Mohan doubts whether the net-cash-neutral goal is optimal, stating that if services become a more significant part of the mix and Apple has better visibility and more stable revenues, earnings, and cash flow, the company could afford to take on more debt to undertake significant mergers and acquisitions. He believes that Apple's robust free cash flow would allow it to de-lever quickly if necessary.

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Regardless, JPMorgan's Samik Chatterjee notes that the commitment to shareholder returns helps Apple's stock stand out and reinforces investor sentiment, particularly in the current macro backdrop, with a strong balance sheet and the flexibility to repurchase shares.

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