Record buybacks put shareholder payouts on $1 trillion pace

Thursday , May 17, 2018 - 11:45 AM

Lu Wang

(c) 2018, Bloomberg.

American companies are investing in their own stocks at an eye-popping pace.

After buybacks among S&P 500 Index members hit a record in the first quarter and more than a third of the index raised dividend payments, corporations have returned $992 billion to shareholders in the past 12 months. At the current rate, 2018 will mark the first year that corporate America showers investors with more than $1 trillion.

How companies use record levels of cash has become a hot-button issue after the Republican tax overhaul brought hundreds of billions of dollars of relief to corporations. The buyback spree bolsters a bull case for stocks at a time when rising bond yields diminish their attractiveness. The largess has also raised eyebrows among those criticizing chief executives for not spending as much on new plants or equipment, a strategy seen key to longer-term profit growth.

Turns out, companies are so flush they can boost spending on both activities. First-quarter spending on capital expenses jumped 21 percent to $159 billion -- a record for any start of the year.

“Cash remains near or at its highs, giving companies the ability to do whatever they want,” Howard Silverblatt, senior index analyst at S&P, said in a note.

The added impulse from corporate buying came as stocks entered the first correction in two years and the S&P 500 notched its worst quarter since 2015.

Below are more details on S&P 500 companies’ cash use in the first quarter:

- At $1.6 trillion, cash and cash equivalent stayed near all-time highs.

- Share purchases surged 34 percent to a record $178 billion, surpassing the previous peak of $172 billion reached in 2007.

- Tech companies accounted for about a third of total buybacks, with repurchases more than doubling from a year earlier; Apple set a record with $22.8 billion.

- Financial firms spent roughly the same as last year, a sign that Fed approved buybacks may have been fulfilled.

- No company cut its dividend for the first time in at least 15 years.

- Among those that raised payouts, the increase averaged 10 percent.

buybacks

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