Apple’s Cash (Updated: Dividends)

Apple is set to make an announcement regarding the future of its cash reserves – cash reserves that have exceeded $100 Billion – tomorrow.

Rumoured announcements range from everything from a dividend release to the purchase of a major company to a donation to the US government for debt repayment. We weigh in below about what we think will actually happen tomorrow and its effect on stock price.

Let’s get the ridiculous idea out of the way first: Apple is not paying down any of the United States debt. US debt currently sits around $15.5 trillion dollars. Even if Apple were to put every penny of their cash reserves into their governments debt repayment plans, it wouldn’t cover a single percentage point of the debt owed. Put another way: the $100 billion they’ve got in the bank wouldn’t even pay down the interest the US government can expect to accumulate this year alone.

Also, debt repayment for the US government would do nothing regarding Apple’s bottom line, and given that the company has managed to save that cash based on their existing strategy, there is no reason for them to change it any time soon.

With that ludicrousness out of the way, let’s get to what is far more likely: a dividend and a major company acquisition.

A lot of people are saying that Twitter will be added to Apple’s portfolio, and we’re iffy about it for one reason: the service still doesn’t rake in the cash in Apple’s trademark style, but that doesn’t mean the company couldn’t change that with a new implementation for developers or other customers. The Cupertino company has also been implementing Twitter into all of their operating systems lately, so it does make sense that they would make the collaboration official. But it just doesn’t seem Apple enough. Again, however, Apple has failed quite miserably with its Ping social networking service, so swapping that out for Twitter in iTunes would make a lot of sense. There are really so many ways this could go.

The one way that it does seem obvious to go is in dividend payment. It hasn’t taken long for Tim Cook to make his own mark on Apple since Steve Jobs’s passing in October of last year. Almost immediately following Steve’s death, he announced a major donation to cancer research, something Steve was opposed to doing. Now, we’re looking at discussing Apple’s finances which Steve would have never done – proven by the fact that, well, he didn’t.

What will we see in terms of dividends? Well, this announcement’s timing does signal that whatever is revealed will have a huge impact on the company’s stock price. Companies just don’t announce these kinds of things on Sunday night and hold the phone-in press conference on a Monday morning at 6am unless they need to avoid a rush of people buying their stock. This also tells us that Apple’s stock is almost surely going to skyrocket after tomorrow’s early morning announcement. If it were a negative announcement, it would either be detailed in a press release, or if given a public conference at all, announced during the week.

Our money says that if a dividend is to happen, it would only apply to those who have held Apple stock for at least a period of six months, but perhaps based on this timing, they may extend it to anyone who had stock before the markets open on Monday.

Let’s also be very clear about the dividend payment here: Apple is most certainly not going to be spending all its cash for any reason. We don’t put Apple’s spending at more than thirty percent of what they’ve got in the bank, or about $30 billion. That would amount to $3 per share, assuming the entire spend is on dividends, which is not at all how we see things going.

In all likelihood, we’re looking at a short but complex agreement to buy out a major company. Nothing like Microsoft or Twitter, but a company that will change what Apple does in business. Not a major fundamental change, but clearly one that will ripple in the industry going forward, if it doesn’t cause a tidal wave.

AAPL sits at $585.57 as of this writing.

UPDATE: Apple has announced that they will offer dividends in the amount of $2.60 per share, as well as begin buying back shares from those who want to sell them back to the company. Before you say “this isn’t what Steve would have wanted,” remember that Steve Jobs wanted for Apple to carve out its own path under its new leadership. Based on that, this is exactly what he’d have wanted. Unfortunately, we didn’t hear of any Twitter buyout, but that doesn’t mean it won’t happen. Apple wouldn’t typically announce these things, but given the size and magnitude of Twitter, it wouldn’t have surprised us that they’d do something a little more public for it. In any case, it seems they know what they’re doing; AAPL shares closed the day of the announcement over $600, a gain of 2% over the previous trading day.