Buybacks and Dividends On Record $Trillion Pace

At the current pace, 2018 will mark the first year that corporate buybacks and dividends top the $trillion mark.

Buybacks among S&P 500 Index members hit a record in the first quarter and more than a third of the index raised dividend payments.

Key Points

  1. At $1.6 trillion, cash and cash equivalent stayed near all-time highs
  2. Share purchases surged 34 percent to a record $178 billion, surpassing the previous peak of $172 billion reached in 2007
  3. Tech companies accounted for about a third of total buybacks, with repurchases more than doubling from a year earlier. Apple set a record with $22.8 billion
  4. Financial firms spent roughly the same as last year, a sign that Fed approved buybacks may have been fulfilled
  5. No company cut its dividend for the first time in at least 15 years. Among those that raised payouts, the increase averaged 10 percent
  6. Capital expenditures are up 21% as well to $159 billion.

In regards to point number one, most of that cash is actually debt.

Point number two is interesting. Here we go again?

Capital expenditures are up 21% but how much of that was planned anyway? It is doubtful Trump tax cuts played a major role in expenditures.

Question of the day: Is this what it takes to hold the stock market flat?

Mike "Mish" Shedlock

Comments
No. 1-16
TheLege
TheLege

I hate to say it but your math is incorrect -- go back and read your example for the obvious mistake. In addition, you ignore how the share buybacks are funded (the vast majority in recent years have been funded with debt, not free-cashflow). That makes a big difference over time, especially as the debt is not productive i.e. it is not investing in company growth. Plus, if a stock price gets cut in half, you're assuming that the divi / share buyback remains constant (that's nonsense, except in fairy magic). SocGen released a report very recently saying their research had shown that the vast majority of share buybacks were, in effect, soaking up dilutive executive stock options i.e. buybacks boost stock price, stock options get exercised diluting the share pool, new buybacks soak up excess shares so that EPS is not negatively impacted down the road. Further buybacks drain more shares flattering EPS meaning bonuses (made up of more stock options) are triggered for executives and the whole cycle repeats. There is a small elite group of winners here and it ain't the shareholders. Share buybacks only make sense when they're funded out of free cashflow and the share price does not reflect the true value of the company i.e. it is genuinely under-valued. The number of genuinely undervalued listed companies out there can be counted on the fingers of one hand (the hand of the no-fingered man).

Carl_R
Carl_R

Realist, I just showed the fact that they are mathematically identical, not which a person would prefer. Yes, there are some small costs for the small sales ($4.95 at my broker), but there also can be tax differences. Yes, you can decline to sell shares, in which case you end up with a larger share of the company, the same as if you opted to re-invest your dividends using a DRIP program.

Blacklisted
Blacklisted

First of all, corporate amerika almost never does layoffs when the downturn starts. They usually wait until the downturn bottoms. Just as they usually hire and expand at the top. If they couldn't buy off politicians to eliminate the competition and get sweetheart deals, they would collapse under real competition...and even then they get bailed out.

If you could get a fixed long-term loan at <4% and invest it in an asset that was virtually guaranteed to rise at double digit yearly returns, what would you do? The govt is making it increasingly more expensive to conduct business and reducing the money consumers have to spend. Why throw money down a black hole? Only govt does that. BTW, its the $80 TRILLION in global investments that is driving the upward trend in stocks, not buybacks or the Fed.

Snow_Dog
Snow_Dog

All in all, it’s still a great example (sniff, sniff, eyes watering up) of the deliverance of privatized reward (activated executive stock options per private party employment contract) being funded by socialized risk (tax cuts absent any comensurate spending cut) and done so to the applause of both ends of the political spectrum. It’s friggin’ beautiful and Goldman Sachs didn’t even get paid a commission to make it happen.

...umm, I think they didn’t, ... right?

LMAO!

Realist
Realist

Hi Wagner. A DRIP is a convenience provided by “some” companies to allow shareholders to use their dividends to purchase further shares without trading fees. The net result is that the dividend actually flows back to the company, and reverses the distribution.That’s essentially the opposite of what Carl is talking about, which is the distribution of excess capital through either dividends or share buybacks. I disagree with Carl. Given a choice between receiving a dividend every 3 months, or personally selling 1.23475 shares every 3 months; I’ll take the dividend. Also, regarding your comment that dividends are not constant, you are correct. Most of my dividend paying stocks typically increase their dividend every year or two. Regarding your comment that dividends are not guaranteed; that is correct, but neither is stock appreciation guaranteed.

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