Investors have waited for years, and they finally got their wish when the new tax law lowered the tax rate for companies with massive piles of cash overseas. While the final rate of 15.5% was higher than some wanted, it was raised to help offset other revenue losses in the new bill. While some are opposed to the cuts, Republicans say the “deemed repatriation” tax imposed by the GOP bill would clear the way for many of those companies to bring their earnings back to the United States.
It is becoming increasingly clear that large technology companies with huge amounts of overseas cash are going to take advantage of the lowered rate and bring large amounts back to the United States to put to work here.
While some have already stated their intentions to use the money for expansion of facilities and other infrastructure items, it is clear that many will use at least some of the proceeds to buy back shares and raised dividends, and they have said so.
We screened the Merrill Lynch research database for large tech companies rated Buy that may be ready to use overseas funds for stocks buybacks and to raise dividend payouts. We found four likely candidates.
This technology giant has been hit recently on concerns that the iPhone X is not the huge home run that was expected. Apple Inc. (NASDAQ: AAPL) designs, manufactures and markets consumer electronics and computers, and it has developed its own proprietary iOS and Mac OS X operating systems and related software platform/ecosystem.
Revenues are principally derived from the iPhone line of smartphones, hardware sales of the Macintosh family of notebook and desktop computers, iPad tablets and iPod portable digital music players. The company also realizes revenue from software, peripherals, digital media and services.
Apple reported first-quarter results that beat expectations. It expects to make $60 billion to $62 billion in the current quarter, which came in below what Wall Street was looking for. iPhone sales fell from a year ago, despite expectations of modest growth.
With a stunning $252 billion overseas, Apple already has announced as part of a five-year, $30 billion U.S. investment plan, that it will make about $38 billion in one-time tax payments on its overseas cash, one of the largest corporate spending plans announced since the passage of a tax cut.
Between the spending plan, hiring 20,000 people, tax payments and business with U.S.-based suppliers, Apple has estimated it would spend $350 billion in the United States over the next five years. The investments in the United States could give the company a lot of latitude to buy back more shares and raise the dividend.
Shareholders currently are paid a 1.46% dividend. The Merrill Lynch price target for the stock is $220. The Wall Street consensus target is $192.43. The stock closed trading on Thursday at $172.99 a share.
This top mega-cap tech company just reported an outstanding quarter. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
On Wednesday the company reported outstanding results and a huge stock buyback as well. The reported adjusted earnings per share were up 10% from a year ago, while revenue rose 3%, topping consensus estimates. Toss in the massive $25 billion share buyback plan, and investors should be well rewarded going forward.
Shareholders receive a 3.00% dividend. Merrill Lynch has a $53 target price, and the consensus target is $42.26. Shares closed most recently at $44.08, up 4.7% on the day.