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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

#101

Post by llamataboot »

sonnyblarney wrote: post #16
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...

This is just what it is. Given an interest rate regime, CFO's will react accordingly and this is that reaction. Also, it's odd to see dividends and buybacks in the same data. Finally - both activities are not bad at all. Buybacks are a strong signal to the market the company believes in it's valuation (FYI investors have access to the same 'cheap capital') and dividends are profits getting out. None of this is bad, b…

Don't get me wrong, don't think there is anything wrong in principal with a buyback - but when we are talking about macro-economics and not any specific business, data like this is a bit strange...

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

#102

Post by ianai »

nostrademons wrote: post #27

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…

Or, market fundamentals have hit or crossed a marginal point where the probability of a contracting market is beginning to diminish capital valuations. They’re keeping stock price trends positive at the expense of cash on hand.

I’m not sure of this argument, but I sense meaning going on at the margin.

My Econ professors had a saying. Something like “you know a correction will start when the last stalwart holdout is convinced he can make money in this market [meaning no one else is left willing to jump in].” Paraphrasing a decade old quote.

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

#103

Post by thisisit »

nostrademons wrote: post #27

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…

> The whole reason stocks have fundamental value in the first place is because they're claims on the future profits of the company.

If earnings are low then so is the free cash flow too. In which case most of these companies are borrowing cash to pay out dividends which is not a good sign.

Similarly, buybacks are supposed to be value accretive. Paying for it using borrowed cash is not adding value. Additionally, buying back a stock which is trading well over its fundamental value is same as overpriced acquisition.

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

#104

Post by thisisit »

This is not a good sign. One of the important things for companies to do is to turn the total earnings into a stable flow of cash.

But if cash outflow is larger than inflow then companies are mostly sitting on negative cash flow. The difference is being covered up by borrowing at low rates. These loans put strain on the future cash flow. Without any reserves to fall back on there might come a time when these companies will be strapped for cash.

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

#105

Post by Gibbon1 »

EliRivers wrote: post #93
kgwgk wrote: post #92

Earlier quoted context omitted.

> I have a company What does that mean? You don’t “own” the company, do you?

Certainly not in the same way that I can own a pen or a nice wristwatch. Now we're getting somewhere! So what does it mean to "own" a company? If the company is just me and a bag of tools, fixing people's cars on their driveway, do I own that company? What does it even mean for me to "own" it?

You're making a good argument to point out that 'ownership' takes a lot of different forms. And an interest in one class of thing isn't the same as others. Ownership comes with differing, restrictions, rights, and responsibilities depending on the thing.

An opinion of mine the ownership of a company through stocks is secondary to stocks being a quasi-cash financial instrument like bonds.

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

#106

Post by nostrademons »

thisisit wrote: post #103
nostrademons wrote: post #27

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…

> The whole reason stocks have fundamental value in the first place is because they're claims on the future profits of the company. If earnings are low then so is the free cash flow too. In which case most of these companies are borrowing cash to pay out dividends which is not a good sign. Similarly, buybacks are supposed to be value accretive. Paying for it using borrowed cash is not adding value. Additionally, buyi…

Corporate profits were at historic highs up through the end of 2018. That's why everybody was complaining about greedy corporate profiteering. Many of them are sitting on huge cash hoards (eg. Apple and Oracle both have about $65B in cash & short-term investments), which is why they're returning cash to shareholders.

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

#107

Post by thisisit »

nostrademons wrote: post #106
thisisit wrote: post #103

Earlier quoted context omitted.

> The whole reason stocks have fundamental value in the first place is because they're claims on the future profits of the company. If earnings are low then so is the free cash flow too. In which case most of these companies are borrowing cash to pay out dividends which is not a good sign. Similarly, buybacks are supposed to be value accretive. Paying for it using borrowed cash is not adding value. Additionally, buyi…

Corporate profits were at historic highs up through the end of 2018. That's why everybody was complaining about greedy corporate profiteering. Many of them are sitting on huge cash hoards (eg. Apple and Oracle both have about $65B in cash & short-term investments), which is why they're returning cash to shareholders.

Oracle and Apple are exceptions than norm. Many companies have shown growth on back of the low interest rate environment. For them to spend money for dividends and buybacks in excess of earnings is not good. Buybacks are especially concerning if they happen at well above company's fair value. That is actually throwing good money to buy an expensive company.

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

#108

Post by nostrademons »

thisisit wrote: post #107
nostrademons wrote: post #106

Earlier quoted context omitted.

Corporate profits were at historic highs up through the end of 2018. That's why everybody was complaining about greedy corporate profiteering. Many of them are sitting on huge cash hoards (eg. Apple and Oracle both have about $65B in cash & short-term investments), which is why they're returning cash to shareholders.

Oracle and Apple are exceptions than norm. Many companies have shown growth on back of the low interest rate environment. For them to spend money for dividends and buybacks in excess of earnings is not good. Buybacks are especially concerning if they happen at well above company's fair value. That is actually throwing good money to buy an expensive company.

That's who we're talking about in this thread, though. vonmoltke posted the actual list of companies doing buybacks. Apple is #1 and Oracle is #2; the remainder of the top 5 is rounded out by Wells Fargo ($253B in cash, albeit as a bank), Microsoft ($133B in cash and short-term investments), and Cisco ($46B in cash and short-term investments). Together they're responsible for over 20% of the $800B in 2018 share buybacks. The top 20 is responsible for about 45% and includes companies like JP Morgan, Bank of America, Facebook, Alphabet, Starbucks, Pfizer, Citigroup, etc.

Arguably they're buying back stock now because they believe it's undervalued. The other prevailing narrative in the media today is that corporations are too powerful and are bleeding the American consumer & worker dry. Which is it? If they're actually bleeding the American consumer dry you'd have to be an idiot not to want a piece of the action, while if they're overvalued and about to collapse there's no reason to be afraid of them.

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

#109

Post by dwaltrip »

nostrademons wrote: post #108
thisisit wrote: post #107

Earlier quoted context omitted.

Oracle and Apple are exceptions than norm. Many companies have shown growth on back of the low interest rate environment. For them to spend money for dividends and buybacks in excess of earnings is not good. Buybacks are especially concerning if they happen at well above company's fair value. That is actually throwing good money to buy an expensive company.

That's who we're talking about in this thread, though. vonmoltke posted the actual list of companies doing buybacks. Apple is #1 and Oracle is #2; the remainder of the top 5 is rounded out by Wells Fargo ($253B in cash, albeit as a bank), Microsoft ($133B in cash and short-term investments), and Cisco ($46B in cash and short-term investments). Together they're responsible for over 20% of the $800B in 2018 share buyba…

To determine "who is doing buybacks", don't we need to normalize by market cap, annual revenue or profit, or some similar metric?

Apple having the largest buyback amount doesn't seem to tell us a ton by itself, given that they are among the top few most valuable companies in the world.

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

#110

Post by nostrademons »

dwaltrip wrote: post #109
nostrademons wrote: post #108

Earlier quoted context omitted.

That's who we're talking about in this thread, though. vonmoltke posted the actual list of companies doing buybacks. Apple is #1 and Oracle is #2; the remainder of the top 5 is rounded out by Wells Fargo ($253B in cash, albeit as a bank), Microsoft ($133B in cash and short-term investments), and Cisco ($46B in cash and short-term investments). Together they're responsible for over 20% of the $800B in 2018 share buyba…

To determine "who is doing buybacks", don't we need to normalize by market cap, annual revenue or profit, or some similar metric? Apple having the largest buyback amount doesn't seem to tell us a ton by itself, given that they are among the top few most valuable companies in the world.

Depends on the conclusion you're trying to draw from the data.

The headline is "Dividends and buybacks now larger than the total reported earnings of the S&P 500." For that conclusion, it's absolutely relevant that Apple et al are doing the buybacks and that their market cap dwarfs many of the companies on the S&P 500 (which has a threshold of $6B to enter, vs. close to $1T for Apple). Apple deciding that they're going to return some of the cash to shareholders they've been stockpiling for the last 5ish years would dwarf the entire earnings of most of the bottom 200 stocks in the S&P 500. That's not a report on weakness or danger in the market, it's a report of what a small number of companies are doing with a large cash hoard. It's sorta like reporting that "Residents of Medina, WA lost more money to divorce in 2019 than they made in total wages" without reporting that Jeff Bezos is a resident.

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