Is an Even Bigger Buyback From Apple Imminent?

Is an Even Bigger Buyback From Apple Imminent?

The massive amounts of cash being deployed by Apple isn't news. What is, however, is the possibility of even more cash being returned to shareholders. It's been well-documented that legendary fund manager Carl Icahn recently took a large position in Apple stock. Now, focus is turned to the recent meeting Icahn arranged with Apple Chief Executive Officer Tim Cook, where the possibility of an even bigger share buyback was reportedly discussed at length.

If true, is an additional share repurchase authorization reason to buy Apple?

A story told a thousand times
Those investors bullish on Apple over the past year have undoubtedly endured pain as they watched the stock decline from $700 per share to its current level slightly under $500 per share. All the while, one of the most frequently cited arguments for buying Apple has been its massive capital allocation program that ensued since Tim Cook took the helm.

Indeed, earlier this year Apple announced an initiative designed to enhance shareholder returns while the company engineers and releases a refreshed product cycle. In April, the company revealed its plan to return as much as $100 billion to investors by the end of 2015, of which $60 billion would be delivered in the form of a share buyback program, with the remainder coming via dividend payments.

Apparently, Icahn feels there's room for even more capital to be deployed. At the previously mentioned meeting with CEO Tim Cook, Icahn pushed for as much as a $150 billion buyback. Judging by Apple's immense cash generation and sky-high mountain of cash on its balance sheet, it's hard to argue with Icahn.

Apple booked $156 billion in revenue in fiscal 2013 along with more than $42 billion in free cash flow. This year is projected to be even better—Apple is expected to bring in as much as $50 billion in free cash flow in the current fiscal year. And of course, we can't forget about the massive amount of cash simply lying on the company's balance sheet. As of its most recent quarter, Apple held nearly $147 billion in cash, equivalents, and short and long-term marketable investments on its books. Going forward, that sum is only going to grow, due to new product releases and Apple's amazing ability to generate huge free cash flows.

Not the only game in town, but perhaps the best
Apple certainly isn't the only technology firm unleashing a wave of cash on its investors. Since the financial crisis, investors have clamored for direct cash returns from their stocks as a means to reduce volatility and provide meaningful downside protection. Many technology stocks have embraced dividend payments, including tech giants Microsoft and Cisco Systems .

Microsoft has struggled to produce strong growth in recent years, as its product initiatives outside of its core software and servers businesses have failed to produce. As a result, the company is turning to cash returns as a means to reward shareholders. Recently, Microsoft announced a huge 22% dividend increase as well as a renewed $40 billion share buyback authorization. Clearly, the company deserves credit for this, as it's now one of the highest-yielding stocks in the Dow Jones Industrial Average, an unimaginable concept just a few years ago.

For its part, Cisco isn't falling behind. The company only resumed dividend payments in 2011, but is upping its payout at huge rates. Earlier this year, Cisco increased its dividend by 21%, and since 2011, its distribution has nearly tripled. And, the company isn't falling behind on share repurchases: since 2002, it's bought back $70 billion of its own stock, according to Chief Financial Officer Frank Calderoni.

While Apple isn't the only technology company returning cash to investors, the sums involved are unparalleled. Apple's $147 billion in cash and investments amounts to one-third of its market capitalization, which represents a margin of safety for investors that is simply hard to match. Even among technology companies, which widely have strong balance sheets flush with cash, Apple's numbers stand out.

Should Icahn's desire for such a gigantic buyback be fulfilled, it simply represents another weapon in the company's arsenal. When you consider its already-generous 2.5% dividend, its compelling valuation, and the prospect of a massive $150 billion buyback, the buy case for Apple should seem obvious to Foolish investors.

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Bob Ciura owns shares of Apple. The Motley Fool recommends Apple and Cisco Systems. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published