Apple's overseas cash hoard is like a 401K
Much has been written about Apple's overseas cash hoard. Most of it has generally been negative....talking about how Apple is "stuck" with all that money overseas. It has been talked about so much that I think people literally think that $100 billion is just sitting in a bank somewhere doing nothing. As a result, in terms of market capitalization, I think a lot of analysts and investors have simply decided to pretend that it doesn’t exist and apply a zero multiplier to that money.
There’s a reason why Apple and many other companies park their money “over there” (over there is actually in New York….but that’s beside the point).
Think of Apple’s cash hoard as a 401K plan. The U.S. corporate tax rate is 35% (ouch). Apple circumvents that by accounting their earnings in another country with a tiny tax rate….like 5%. Since they have $100 billion in earnings stashed, that’s $30 billion in savings. The only thing that they really can’t do with that money is spend it in the good old USA. They can invest that money in the stock market in other U.S. companies and earn a nice return. Let’s assume an 8% return, which is the long-term S&P return. Then they borrow at 3% to pay dividends and buy back shares stateside. When they buy back shares, they save themselves money in dividends. When they pay dividends, they return cash to shareholders. On top of that, they get to write off the 3% loan interest on their U.S. taxes, saving even more money. They end up netting 7% or so annually.
It’s unlikely that the U.S. will increase their horrifically high corporate tax rate, so at the worst, Apple gets to accumulate 7% on $30 billion tax free and pay the tax later. At best, they can bring their money home under either a tax holiday or a lower corporate tax in the future. That's not worth a zero multiplier to me.