Shareholders likely to see most of AAPL’s repatriated cash, say analysts, with $88B benefit

While taxpayers will welcome the $38B tax contribution Apple will make from the $245B foreign cash it plans to repatriate, AAPL shareholders are expected to be the biggest beneficiaries.

Analysts expect Apple to spend most of the money in three ways, with shareholders reaping the rewards …

The WSJ reports that analysts predict three likely measures:

• Increased share buybacks
• Dividend increases
• A one-time special dividend

There appears to be a consensus view on the first two, with some suggesting the third, and one firm making a specific prediction.

Loup Ventures, a venture-capital firm specializing in tech research, now expects Apple to announce an increase of between $125 billion and $150 billion in buybacks and dividends through 2020—pushing the total target as high as $450 billion. Loup attributes $88 billion of that increase to the new tax system, pegging $71 billion for buybacks, $12 billion for a one-time special dividend and $5 billion in dividend increase over two years.

Share buybacks effectively increase the value of shares already held, by giving each share a slightly bigger slice of the pie.

It’s also been suggested that Apple could use some of the cash to pay down debt, but others argue that it has obtained such low interest rates that there is little benefit to doing so.

The tax break on the repatriated tax will also reduce Apple’s overall effective tax rate.

Though Apple has reported an effective tax rate of about 25% over the past three years, Jennifer Blouin, an accounting professor at the University of Pennsylvania’s Wharton School, estimates its current rate is closer to 18%: 42% in combined federal and state taxes on its U.S. profits, a third of the total, and 6% on its overseas profits, the remaining two thirds.

She expects Apple’s effective rate to drop to about 16% as the decline in the U.S. tax rate to 21% from 35% offsets a new tax of 10.5% on some foreign profits.

There has additionally been the inevitable speculation about one or more large acquisitions, but none that seem to gel with Apple’s history and strategy.

Apple said recently that its tax payment and investments in US manufacturing would contribute $350B to the American economy over the next five years.

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