Apple Said To Prep Massive $400 Billion Shareholder Payout To Offset iPhone Disappointment

Apple's iPhone X sales woes have been extensively documented in recent days (most recently in "Doubts Grow At Apple" That A $1,000 Smartphone May Not Have Been A Winning Idea"), and with earnings by the world's most valuable company scheduled for tomorrow after the close, many have asked just how Apple will avoid having its stock punished for what has been a disappointing quarter.  Adding fuel to the fire, Daniel Ives, an analyst at GBH Insights in New York, said Wall Street was in "full panic mode" about iPhone figures.

Well, it appears that Tim Cook has come up with a solution: according to The Times, the Apple CEO may unveil a mammoth $400bn cash return to shareholders "in an attempt to ease unrest over weak iPhone sales."

Several analysts have predicted that Cook will hand shareholders $300bn to $400bn through dividends and a share buyback scheme over two to three years.

After resuming dividend payments and instituting a share buyback scheme in 2012, largely at the suggestion of Wall Street, Apple has added between $30BN and $50BN to its shareholder return program at around this time every year according to the FT, and at the current pace, ahead of this week’s eagerly anticipated announcement, all those buybacks and dividends will total $300bn by March 2019.

A huge buyback by Apple has been made likely by Donald Trump’s tax cuts, which will allow Apple to repatriate its $252bn foreign cash pile without paying a substantial capital gains tax bill; in fact as many companies with a large offshore hoard have shown this earnings season, they have been aggressively using cash to repay investors, none more so than Amgen whose cash shrank by a quarter this quarter to fund buybacks.

The FT confirms as much, reporting overnight that a record-breaking expansion to Apple’s capital returns scheme "could help win over investors who have become preoccupied by concerns of a global slowdown in smartphone sales."

Apple said in February that it planned to eliminate what was then a $163bn cash pile, net of debt, after repatriating capital accumulated overseas following recent US tax reforms.

Wall Street analysts expect the vast majority of those profits to be given back to shareholders in the coming years, in a move that could take Apple’s cumulative capital returns since 2012 to as much as $450bn by 2020.

Analysts at Morgan Stanley estimate that Apple could announce a $150bn increase to that sum on Tuesday.

“This would imply Apple repurchases $210bn in shares and pays $52bn in dividends over the next three years,” the bank said in a recent note to clients, adding that this would still leave about $30bn available for acquisitions.

Deutsche Bank's Jim Reid commented on the massive buyback rumor:

Apple is considering a $400bn payout to shareholders over the next 2-3 years to ease simmering concern about growth and the new iPhone X sales figures. To put that number in perspective, a country with $400bn of annual output would slot it above Norway but just below Austria and in 28th in the world. So Apple’s results on Tuesday may have some implications for the wider market and could go either way with investors worried about sales but with a possible mega payout as compensation. Definitely one to watch.