updated 01:25 am EST, Thu November 29, 2012
Could boost stock price and avoid cap-gains increases
Based on the moves by several other companies including Costco -- or perhaps a bit of wishful thinking by shareholders -- Apple may be contemplating a special one-off dividend to help avoid any potential investor unrest in light of likely increases in the capital gains tax rate. Further reducing the company's enormous cash pile, which is growing faster than Apple can spend it on dividends or stock buybacks, might accomplish a hat trick of saving shareholders money, reducing its own tax liabilities and boosting its own share price.
Walmart and Costco are among the companies that have recently announced a special dividend to try and head off possible dividend taxes. Tyson Foods, Wynn Resorts, Dillard's and at least 63 other publicly-traded companies have also announced year-end dividend distributions, fearing increased costs due to the possible expiration of the Bush-era tax cuts on high-earning individuals and companies with cash stockpiles in the upcoming Congress.
If Congress doesn't agree on a compromise extension of some elements of the legislation, the 10-year Bush tax cuts that mostly went to wealthy investors and highly-profitable companies will expire -- with consequences both for business, the rich and middle-class taxpayers. The President is seen by the business community as having won a second term on the promise to keep the tax cuts for the middle class, but allow rates on capital gains and high-earner (over $250,000 per year) to return to the pre-Bush rates. Even if a deal is reached to keep portions of the Bush cuts, the wealth-holders of the US can expect to see some level of marginally higher tax increases in the top two brackets (for those earning at least $250,000 per year or higher) and a significant jump in capital-gains taxes (from the current lowest-ever rate of 15 percent to the pre-Bush rate of 23.8 percent).
So far, the threat of the expiration and some "poison pill" cuts that will triggered by it appears to have worked to focus the Congress on finding a compromise: both the President and Speaker of the House John Boehner were quoted today as saying they expected to work out a deal to avoid the consequences -- most of which have been largely overblown, particularly by business-oriented media outlets.
The possibility of a jump in capital-gains rates (still well below the typical rates of cap gains and individual taxes during most of the 20th century, but the first increase in 20 years) has investors and businesses studying whether the moment represents an opportunity to disperse and re-invest some of the massive gains in profits most corporations have garnered. Apple, not known for reacting to pressure from speculators and investors, has not thus far indicated any interest in offering a special dividend.