Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
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Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#2Can't see this ending without a lot of pain. Credit is so easy that it becomes easier to reduce the amount of shares out there to prop up their price than do what capital markets are supposedly designed for - offering more shares to invest in capital. Yet raising interest rates would crash the market. At some point true price signals will leak through and the tiny hole in the wall will become a flood...
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#3If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to artificially boost shareholder returns instead of actually investing in things like capital expenditures, R&D, or higher salaries. On one hand (as the article points out), this is driven by cheap credit, but on the other hand I think the question needs to be asked: have large corporations just run out of things worth investing in?
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#4For some counterpoints, consider this paper from Cliff Asness of AQR fame. https://www.aqr.com/Insights/Research/Journal-Article/Buybac...
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#5If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to artificially boost shareholder returns instead of actually investing in things like capital expenditures, R&D, or higher salaries. On one hand (as the article points out), this is driven by cheap credit, but on the other hand I think the question needs to be ask…
You think returning money to investors is a sign the economy is broken?
IMO it’s a sign companies are doing the intelligent thing and are assuming investors are better investors than throwing money at random shit.
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#6If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to artificially boost shareholder returns instead of actually investing in things like capital expenditures, R&D, or higher salaries. On one hand (as the article points out), this is driven by cheap credit, but on the other hand I think the question needs to be ask…
Stock buybacks aren’t artificial boosting. It’s the correct move when your company is undervalued and you don’t have better investment options.
See Apple for an example of doing it right.
See Chipotle for an example of doing it wrong.
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#7Can't see this ending without a lot of pain. Credit is so easy that it becomes easier to reduce the amount of shares out there to prop up their price than do what capital markets are supposedly designed for - offering more shares to invest in capital. Yet raising interest rates would crash the market. At some point true price signals will leak through and the tiny hole in the wall will become a flood...
Where are there companies using credit to issue dividends?
If companies just took on debt to issue a dividend, the share price would be devalued by the market by the dividend amount due to the debt so it would be a pointless exercise.
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#8If you need evidence that our economy is at least partly broken, this is it right here. Companies that are swimming in cash reserves are using their money to artificially boost shareholder returns instead of actually investing in things like capital expenditures, R&D, or higher salaries. On one hand (as the article points out), this is driven by cheap credit, but on the other hand I think the question needs to be ask…
> have large corporations just run out of things worth investing in?
Businesses don't expand just because capital is cheap, they need some kind of demand to fill. That's the fundamental problem with "trickle down" economics, it assumes the economy is supply constrained when it is more commonly demand constrained. And worse, the polices that it produces tend to squeeze the lower and middle classes, further reducing demand.
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#9Can't see this ending without a lot of pain. Credit is so easy that it becomes easier to reduce the amount of shares out there to prop up their price than do what capital markets are supposedly designed for - offering more shares to invest in capital. Yet raising interest rates would crash the market. At some point true price signals will leak through and the tiny hole in the wall will become a flood...
Once a company has no need for more cash, there is no point to sell shares. The whole point of a IPO is to fund growth / give founders and early employees a payout.
Share buybacks aren’t about propping up the price (when done correctly). They’re about tax efficiently increasing your ownership share. Or you can think of it as paying money now to reduce the amount you need to pay in dividends, all else equal.
Share repurchasing is just a tax efficient way to return money to shareholders. People love dividends yet look at buybacks as insane. Why?
* Note: buying back shares when your company is overvalued is insanity. I’m not endorsing that. But if you’re in a situation like AAPL, they are hands down the correct move.
Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500
#10Can't see this ending without a lot of pain. Credit is so easy that it becomes easier to reduce the amount of shares out there to prop up their price than do what capital markets are supposedly designed for - offering more shares to invest in capital. Yet raising interest rates would crash the market. At some point true price signals will leak through and the tiny hole in the wall will become a flood...
Once a company has no need for more cash, there is no point to sell shares. The whole point of a IPO is to fund growth / give founders and early employees a payout. Share buybacks aren’t about propping up the price (when done correctly). They’re about tax efficiently increasing your ownership share. Or you can think of it as paying money now to reduce the amount you need to pay in dividends, all else equal. Share rep…
If companies were throwing off dividends exceeding their collective earnings, wouldn’t you be concerned?