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If Credit's Tight, Why is Apple Selling Bonds to Pay Its Dividend?


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#1 Douglas

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Posted 01 August 2022 - 01:04 PM

Apple which has more spare cash than they can possibly deploy is apparently selling bonds to help pay its dividend.  If credit was even remotely tight or interest rates anywhere near "neutral" would this make any sense?  It does to Apple which can borrow at near dirt cheap  Treasury rates six per cent below the rate of inflation.   This is a glass clear sign that there is still too much funny money sloshing around in the system.

 

As I predicted in my risk window note, the Fed minions were out in force today trying desperately to convince anyone who would listen  that, no, Powell is not about to pivot and, yes, they really, really are serious about jacking up rates to kill inflation, pinky swear.  This month they are supposed to start serious draw down of their balance sheet.  When the rate of draw down starts to equal, or better, exceed the ramp up, then you know they are serious.  Until then, talk is cheap, but not as cheap as Apple is borrowing.  

 

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Douglas



#2 slupert

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Posted 01 August 2022 - 04:53 PM

Apple which has more spare cash than they can possibly deploy is apparently selling bonds to help pay its dividend.  If credit was even remotely tight or interest rates anywhere near "neutral" would this make any sense?  It does to Apple which can borrow at near dirt cheap  Treasury rates six per cent below the rate of inflation.   This is a glass clear sign that there is still too much funny money sloshing around in the system.

 

As I predicted in my risk window note, the Fed minions were out in force today trying desperately to convince anyone who would listen  that, no, Powell is not about to pivot and, yes, they really, really are serious about jacking up rates to kill inflation, pinky swear.  This month they are supposed to start serious draw down of their balance sheet.  When the rate of draw down starts to equal, or better, exceed the ramp up, then you know they are serious.  Until then, talk is cheap, but not as cheap as Apple is borrowing.  

 

Regards,

Douglas

AAPl has about $110 billion in free cash flow for next year, All this is telling you is that rates will be going up and that AAPl is an excellent risk.



#3 slupert

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Posted 01 August 2022 - 05:01 PM

For thise that have never taken financial accounting, income has nothing to do with dividends it comes from retained earnings. AAPL's retainded eranings are down as the following chart shows, but AAPL is a money prining machine. AAPl will be using some of that free cash flow for growth is what's happening. Don't worry about AAPl they will be just fine.

 

Retained Earnings For Apple Inc. (AAPL) | finbox.com



#4 Douglas

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Posted 02 August 2022 - 04:08 AM

slupert, I guess I wasn't that clear in my little note above.  I have zero concern about Apple's finances.  Quite the opposite, they are are being very savvy.  The point of my apparently rather poorly worded note is that the Fed is not tightening credit to any substantial degree despite what they are saying, so smart players like Apple are taking advantage of cheap borrowing for leverage.  Apple appears to have sufficient retained earning to pay the dividend, but choose to borrow instead and as you note use the retained earnings for growth investment.  Businesses are still neck deep in all the cheap funny money created by the Fed that they could possibly need.  Actually stopping inflation will require that the Fed sops up a lot of that funny money by tightening credit.  So far the Fed has been painfully slow in taking the necessary steps, probably because, as I 've noted before, they still secretly believe that most of current high inflation is transitory and will magically disappear over the coming quarters.

 

Regards,

Douglas   



#5 slupert

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Posted 02 August 2022 - 05:45 AM

slupert, I guess I wasn't that clear in my little note above.  I have zero concern about Apple's finances.  Quite the opposite, they are are being very savvy.  The point of my apparently rather poorly worded note is that the Fed is not tightening credit to any substantial degree despite what they are saying, so smart players like Apple are taking advantage of cheap borrowing for leverage.  Apple appears to have sufficient retained earning to pay the dividend, but choose to borrow instead and as you note use the retained earnings for growth investment.  Businesses are still neck deep in all the cheap funny money created by the Fed that they could possibly need.  Actually stopping inflation will require that the Fed sops up a lot of that funny money by tightening credit.  So far the Fed has been painfully slow in taking the necessary steps, probably because, as I 've noted before, they still secretly believe that most of current high inflation is transitory and will magically disappear over the coming quarters.

 

Regards,

Douglas   

I agree, AAPL is one of tthe lucky ones and they are the early movers in that game. If there is a FED mistake and rates go to 4-4.5%, things will get ugly fast.



#6 pdx5

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Posted 02 August 2022 - 07:43 AM

Apple is using money on hand to expand business. Why not borrow cheap money from FED to pay dividends?
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#7 redfoliage2

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Posted 02 August 2022 - 10:14 AM

 

Apple which has more spare cash than they can possibly deploy is apparently selling bonds to help pay its dividend.  If credit was even remotely tight or interest rates anywhere near "neutral" would this make any sense?  It does to Apple which can borrow at near dirt cheap  Treasury rates six per cent below the rate of inflation.   This is a glass clear sign that there is still too much funny money sloshing around in the system.

 

As I predicted in my risk window note, the Fed minions were out in force today trying desperately to convince anyone who would listen  that, no, Powell is not about to pivot and, yes, they really, really are serious about jacking up rates to kill inflation, pinky swear.  This month they are supposed to start serious draw down of their balance sheet.  When the rate of draw down starts to equal, or better, exceed the ramp up, then you know they are serious.  Until then, talk is cheap, but not as cheap as Apple is borrowing.  

 

Regards,

Douglas

AAPl has about $110 billion in free cash flow for next year, All this is telling you is that rates will be going up and that AAPl is an excellent risk.

 

This is a regular practice by big companies such as Apple when they see the rate will go higher .......................