Apple and AT&T are Borrowing Money to Pay Dividends

In an unorthodox move that reflects relatively low interest rates and the high tax rate on bringing cash from overseas accounts back to the United States, Apple says it will begin to borrow money to fund share buybacks and a higher dividend. 

AT&T is doing so as well. In 2012, AT&T dividend payments were nearly $4 billion more than its free cash flow. And AT&T sees free cash flow being some $5 billion lower in 2013. Something has to give, some would say. 

In 2012, AT&T spent $12.8 billion to buy back shares, and another $10 billion to pay dividends. Company-wide, AT&T increased long-term debt by $5 billion in 2012. 

Given the super-low interest rates on corporate debt, there is an argument to be made for using debt to fund either share repurchases or dividends. Some might not agree it is a terribly good argument, though.