Fortune reports that Apple’s stock repurchase scheme – buying back some of its own shares – is proceeding more than three times faster than scheduled.
If Fortune‘s numbers are correct, then Apple has already spent almost all of the $17B it borrowed back in April. Accelerating the planned repurchase program makes sense if you expect the stock to cost less now than it will later. In other words, if you’re expecting the stock price to climb …
If you’re wondering why a company awash with cash (now standing at $146B) would need to borrow money, the reason is tax. The Washington Post figures in the example we quoted back in April are now out of date, but they give the basic idea.
The buyback program thus makes financial sense at pretty much any time, but the accelerated pace suggested by Fortune indicates Apple is very much bullish about its own stock.
At a 35 percent tax rate, the borrowed money would cost Apple $8 after taxes for each share it bought back. That’s significantly less than the $12.20 after-tax cost of its $12.20 dividend.
