Apple Inc.'s ability to pay a special dividend, viewed by investors as unlikely, is limited because almost 70 percent of its cash is outside the United States
While dozens of companies are paying special one-time dividends before a potential jump in taxes, Apple probably won't join in partly because so much of its $121.3 billion in cash is held overseas, according to analysts. Apple is likely to focus on boosting its quarterly $2.65-a-share dividend, said Brian White of Topeka Capital Markets Inc.
BEATING NEW TAX RATE
The payouts come before a potential rise in the top federal tax rate on dividends to 43.4 percent from 15 percent next year as part of the so-called fiscal cliff, a blend of tax increases and spending cuts that will take effect if U.S. lawmakers don't forge a budget deal.
Apple doesn't share the same concerns as other companies over the tax increase, White said.
"That's not how they operate," White said in an interview. "They won't be driven by some transactional event -- it's just not their style to try to game taxes or game the market." Steve Dowling, a spokesman for Apple, declined to comment.
GROWING APPLE DIVIDEND
White's comments matched those of Wall Street analysts such as Chris Whitmore of Deutsche Bank AG. Instead of the special dividend, investors can expect Apple to increase its current payout by at least 10 percent, said Abhey Lamba, an analyst with Mizuho Securities USA.
"They will continue to give that dividend and will probably start growing it," Lamba said.
Much of the company's cash flow is being used for the dividend announced this year, Lamba said.
Investors are more concerned that Apple's long-term growth prospects may be fading, rather than whether the company will pay a special dividend, said Andy Hargreaves of Pacific Crest Securities LLC. Increased competition for the iPhone and iPad, as well as investors selling shares to avoid paying higher capital gains taxes, have contributed to the stock losing almost a quarter of its value since hitting an all-time high in September, he said.
While the stock has declined 25 percent since hitting an intraday record high of $705.07 on Sept. 21, it remains up 31 percent so far this year.
Apple reinstated dividends starting in the quarter beginning July 1 and adopted a plan to buy back $10 billion in shares over three years. Investors saw that as a sign chief executive Tim Cook was more willing than late co-founder Steve Jobs to channel part of cash and investments directly to investors.
The moves will cost $45 billion over three years and expand Apple's investor pool, Cook said at the time. Apple last paid a dividend in 1995, before Jobs returned as chief executive and led the introduction of top-selling products including the iPod, iPhone and iPad.
Even while distributing more cash to investors, White said Apple will continue to add to its cash reserves, with its balance sheet reaching $250 billion by the end of 2015. "This is a cash gusher," he said.
In an interview last week with Bloomberg Businessweek, Cook said that Apple's cash was being managed with "the most conservative investments known to man" and that he was "involved heavily" in the decision to distribute the funds.