Corporations have five basic uses for the cash that they bring in: 1) share buybacks; 2) dividends; 3) acquisitions; 4) research and development; and 5) capital expenditures, which includes both growth and maintenance.
Goldman Sachs’ David Kostin included this useful chart in a recent presentation to clients.
As you can see, companies have been increasingly returning cash to shareholders in the form of dividends and buybacks. Furthermore, buybacks generally represent a bigger source of cash distribution than dividends.
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