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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

#21

Post by SilasX »

mdorazio wrote: post #3

If 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…

If they don't know high(-enough)-RoR uses of the money, then paying it out as a dividend is exactly what they should do as good stewards of the investors' capital.

And share buybacks are just a tax-efficient version of dividends (since they don't trigger a taxable event for the investors that don't want to convert shares to cash yet).

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#22

Post by jjwhitaker »

After the 2017 tax bill this was bound to happen. consolidating stocks allows greater control over the corporation by the high % owners, minimizes activist investors, reduces accountability, and further funnels profit to the top. Whatever that "poll" advertisement is at the bottom with a caricature of AOC was misleading and dishonest at best. What agenda is this site pushing i that's their biggest ad on this article?

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#23

Post by AnthonyMouse »

lovich wrote: post #12
__blockcipher__ wrote: post #9

Earlier quoted context omitted.

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…

Because it's difficult to distinguish between executive leadership trying to efficiently return money to shareholders vs propping up the share price so that they see a personal benefit via their own shares increasing or via contractual bonuses. Given that there's an incentive to spend other peoples money(shareholders who bought shares) to increase their own(via bonuses, salary, or granted shares) it's fairly safe to…

> via their own shares increasing

This isn't any more true for the executives than any other shareholder, and doesn't really work that way anyway. Buybacks don't increase the value of shares unless the company was undervalued or making less efficient use of the cash than their other capital, and in that case they're smart to have done it.

> via contractual bonuses

The way to solve this is to do accounting for buybacks (and, for that matter, dividends) when calculating bonuses. You obviously don't want to have executives choosing whether to do these things based on that, so don't.

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#24

Post by twic »

__blockcipher__ wrote: post #9
llamataboot wrote: post #2

Can'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…

Issuing shares is borrowing money.

Buying back shares is repaying that money.

It's a good thing that companies can repay the money they have borrowed, and a good thing that they are doing it.

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#25

Post by MarkyC4 »

__blockcipher__ wrote: post #6
mdorazio wrote: post #3

If 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.

Non-American with no position in Chipotle here. Could you elaborate a bit on how they did their buyback wrong? I see their stock have climbed in the past year, so wasn't the buyback worth it?

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#27

Post by nostrademons »

This is how its supposed to work. The whole reason stocks have fundamental value in the first place is because they're claims on the future profits of the company. 100% of a company's earnings legally belongs to the shareholders; it's nice to see them actually returned to the shareholders (vs. blown on overpriced acquisitions) for a change.

It does mean the end of a cycle, though, and not just a "stocks go up, stocks go down" cycle. It's rational for corporate management to retain earnings and invest in future growth opportunities when the expected returns from those growth opportunities are greater than the cost of capital. That they're returning capital to shareholders, even in an era of historically low capital costs, indicates that they can't find growth opportunities at any price.

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#28

Post by User23 »

mdorazio wrote: post #3

If 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…

Giving money back to shareholders sounds a lot like giving money to venture capitalists to me.

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#29

Post by JohnJamesRambo »

povertyworld wrote: post #13
kortilla wrote: post #5

Earlier quoted context omitted.

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.

Right. Wouldn't it be great if Google would start paying a dividend instead of throwing away money on goofy acquisitions like Boston Dynamics? How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly? Give me a break.

The unceasing robot dog terminator hunts you down, pins you, and shows you ads on its visor/eyes.

Re: Dividends and Buybacks Now Larger Than Total Reported Earnings for Entire S&P500

#30

Post by y96V89C668e7Q74 »

I was taught in economics classes that buybacks make sense when there is nothing the company believes it can spend the money on instead to increase its profit. If this is true, should we be concerned that this is a market signal that the economy as a whole is running out of opportunities to invest in new technologies and instead just trying to hold onto its own value? If that is the case, I imagine that buybacks could be viewed as a signal that the market is moving more in the direction of being zero-sum and less in the direction of expanding. And if that is true, does that suggest that this phase of growth in the business cycle is coming to a close?

I agree with the logic behind the arguments that a company buying its own stock should be a signal that the company believes in its business and valuation, but it also seems that many companies that also believe in their business and valuation also sell stock to raise money in order to expand, with the belief that the sale will result in individual stocks increasing in value even after the dilution. It seems hard for both cases to be true, but perhaps they are.

If this logic is sound, it seems that we should be at least somewhat concerned about this.

Also, I didn't understand how cheap credit is encouraging buybacks if companies aren't buying their own shares on credit. Would someone be able to explain this better than the article? (Thanks!)

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