America’s corporations continue to sit on trillions of dollars worth of cash.
And in this current period of sluggish growth, many companies have opted to unleash extra in the forms of dividend and share buybacks
“It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” said BlackRock’s Larry Fink. “Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.”
Indeed, fresh data from S&P confirms that this trend is continuing.
“Companies continue to increase their shareholders’ returns through buybacks and cash dividends,” said S&P senior index analyst Howard Silverblatt. “These two expenditures, combined, reached $US214.4 billion in the fourth quarter — the second highest level (Q3 2007 holds the record at $US233.2 billion) and three times the Q2 2009 Bear market level ($71.8 billion). Helping companies do this are record earnings, record cash-flow and record cash reserves; pushing companies are activist investors and the growing concern within board room over outside holders ‘coming in’.”
“I expect this trend of greater shareholder return to continue throughout 2014 (ain’t no bodies opinion but my own),” said Silverblatt.
According to Societe Generale’s Albert Edwards, the deceleration in profit growth is a precursor to even lower business spending levels.
It’s worth noting, however, most economists continue to be optimistic that a business spending boom is just around the corner.
For now, check out Silverblatt’s data showing the rise of dividends and buybacks.