Apple has accumulated approximately $82 billion in cash and cash equivalents as of December 2011, which has sparked off discussions about whether or not Apple should distribute some of that wealth back to its shareholders via either a buyback or a one time dividend.
While I’m not in favor of dividends for reasons that are beyond the scope of this post, here’s one of the biggest reasons why paying out a dividend to its shareholders is not a feasible option for Apple (or its shareholders) – most of its cash is in offshore accounts.
While Apple is generating loads of cash every quarter from sales of the iPhone, iPad, iPod and Macbooks, most of its sales are now in international markets. The cash generated from sales outside the U.S. is in its offshore accounts. If Apple tries to bring its cash back to the U.S., it could be charged the standard 35% corporate tax rate in the U.S., which would reduce its effective cash reserves by almost $19 billion. To add to that, if it gives out dividends, its shareholders would have to pay 10% to 15% in dividend tax, which would mean even less wealth accruing to the shareholders.
This is why Apple is better off investing the money back in its business, spending it on further improving its operations and acquiring companies across the globe (like Anobit), which is the best use of its offshore cash reserves.