Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

thesoundingline.com

Post reply on HN
Print view View original

31–40 of 116 posts

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

#31

Post by rat_1234 »

SilasX wrote: post #21
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).

Agreed!

It's easy to say 'you should be investing that capital into projects.'

But I think people don't realize how much money is actually generated by some of these companies.

I know AAPL is the strongest possible case for my argument, but bear with me.

Their operating cash flow net of CAPEX is ~$65B as of their 2018 year ending in September. I.e., after paying for all of the investments they want to make, they still have $65B in straight up cash left over.

I mean -- what are you supposed to do with all of that?

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

#32

Post by twoquestions »

jjwhitaker wrote: post #22

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?

The site probably doesn't control the ads that appear, and such an ideological slant doesn't look evident looking at the titles of their other articles.

The first bit is bang-on.

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

#33

Post by CydeWeys »

y96V89C668e7Q74 wrote: post #30

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 coul…

I was taught in economics classes that buybacks shouldn't increase the stock price at all, which clearly isn't true in practice. It ends up being more complicated than the simple models would suggest.

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

#34

Post by padobson »

kortilla wrote: post #7
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...

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.

I think it's more about the trade-off. There's no obvious opportunity to deploy the capital, and if one pops up later, easy credit makes it trivial to take advantage of the new investment.

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

#35

Post by y96V89C668e7Q74 »

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…

> indicates that they can't find growth opportunities at any price.

This is a great way to put it! Thank you. Would it be fair to say that this suggests the market isn't really expanding and has essentially become zero-sum (or technically I guess it could mean that expansion is free, but that seems unlikely)?

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

#36

Post by guelo »

CydeWeys wrote: post #33
y96V89C668e7Q74 wrote: post #30

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 coul…

I was taught in economics classes that buybacks shouldn't increase the stock price at all, which clearly isn't true in practice. It ends up being more complicated than the simple models would suggest.

How could the price not go up? I understand buybacks as reverse dilution. Each share represents a larger percentage of the company, therefore it is more valuable and it's price should be higher. Is that wrong?

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

#37

Post by povertyworld »

sonnyblarney wrote: post #18
povertyworld wrote: post #13

Earlier quoted context omitted.

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.

Yeah, it was so less goofy they had to unload it on Softbank, the goofy investment kings.

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

#38

Post by dustinmoorenet »

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…

But they aren't just using their earnings. They are borrowing too.

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

#39

Post by povertyworld »

rhino369 wrote: post #19
povertyworld wrote: post #11

Earlier quoted context omitted.

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.

I don't have a problem with buybacks either. There was a time when Buffet argued to people that holding cash was worth some multiple greater than returning the cash, and he was probably right. I'm just saying that is more indicative of a "warped economy" than a business actually returning money.

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

#40

Post by ProfessorLayton »

kortilla wrote: post #7
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...

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.

IIRC Apple is borrowing hundreds of billions to pay as dividends/buybacks because it's cheaper to pay interest than it is to pay taxes on money earned overseas.
Post reply on HN