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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

#11

Post by povertyworld »

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 a company is swimming in cash, shouldn't that be going to investors in the form of dividends? This ideology of hoarding cash pushed by guys like Buffet is a sign of a warped economy.

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

#12

Post by lovich »

__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…

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 assume that execs are following the incentive

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

#13

Post by povertyworld »

kortilla wrote: post #5
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…

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.

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

#14

Post by challenger22 »

__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.

It's also a more tax efficient way of distributing returns to shareholders than dividends. GP does not know what he's talking about.

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

#15

Post by ForHackernews »

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.

...it was supposed to get them into the highly lucrative world of military contracting. But then it caused too much of a PR stink, so they had to back off from that idea.

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

#16

Post by sonnyblarney »

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, but it's going to get hard to get off of the sugar addiction.

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

#17

Post by sonnyblarney »

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…

"Companies that are swimming in cash reserves are using their money to artificially boost "

There is nothing artificial about it

CFO's are reacting rationally to the credit situation that they do not control.

Consider that labour markets are tight, and 'productive investments' are not easy to make. They are generally very risky.

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

#18

Post by sonnyblarney »

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.

" How the hell is a robot dog that does flips or whatever supposed to improve their advertising business exactly?"

Because a robot that does flips can also flip burgers, pick inventory, sneak up on people (i.e. military) and ultimately that stuff will be worth a lot.

One of their lesser goofy investments.

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

#19

Post by rhino369 »

povertyworld wrote: post #11
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 a company is swimming in cash, shouldn't that be going to investors in the form of dividends? This ideology of hoarding cash pushed by guys like Buffet is a sign of a warped economy.

Buybacks are equivalent to dividends, but with less taxation.

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

#20

Post by AnthonyMouse »

georgeburdell wrote: post #10
__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…

If companies were throwing off dividends exceeding their collective earnings, wouldn’t you be concerned?

Not if they've been sitting on a pile of cash for years and doing nothing with it. What are they supposed to do with money they don't need? Store it in a mattress forever?
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