The capex boom has been terrible for shareholders

Jonathan GlionnaBarclaysJonathan Glionna

Barclays asked over 200 investors for their thoughts on how companies should be spending excess cash.

Most of them said: “capital expenditures.”

However, Barclays also found that investors are being rewarded by companies that spend on share repurchases and dividends instead, as companies with a high ratio of capex to net share buybacks have underperformed those with a low ratio.

Here’s Barclays’ Jonathan Glionna in a note Tuesday:

“The cumulative spread return since 2010 for each of our three factors is shown in Figure 15. As is clear from the graph, the capex factor has been the worst performing. In fact, over the last five years, our capex factor has generated negative returns. The dividend factor performed well from 2010-2012, but the performance peaked in mid-2012 and cumulative returns since then have been negative. The returns of the gross repurchase factor have been flat. Overall, these factors show us that the stocks of companies that invested a large portion of cash flow in capital expenditures performed significantly worse than companies that instead returned capital to shareholders through dividends or buybacks.

Glionna wrote that capex spending will continue growing in 2015, but the plunge in spending from the energy sector is a major limitation. Capex growth will be between 1% and -3%, and Glionna notes that capex spending peaked at $US730 billion in 2014.

And in February, companies announced a record $US104.3 billion in planned buybacks.

And here’s Glionna’s schematic showing the firm’s thought process on capex.

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