How are big US multinationals spending their near-record cash hoards at time of low rates? Instead of hiring or investing in R&D, they’re increasingly buying back stock, Jia Lynn Yang reports:
The 30 companies listed on the Dow Jones industrial average have authorized $211 billion in buybacks in 2013, according to data from Birinyi Associates, helping to lift the benchmark stock index to heights not seen since the tech boom of the late 1990s. By comparison, the amount is nearly three times what the group spent on research and development last year, according to data from S&P Capital IQ.
This trend, she writes, transcends industries. In 1985 there were 52 stock buybacks; in 2013, there have been 885. Or, rather, 886 -- Boeing yesterday announced it wants to buy back $10 billion of its own stock and upped its dividend 50%.
Corporate cash, Gluskin Sheff economist David Rosenberg writes, is likely not going into particularly productive investments. Instead, cash is going to share buybacks and dividends which, he suggests, can make the stock market seem healthier than it actually is. Rosenberg has also said that this is “one of the weakest investment cycles ever.”
Earlier this year, Dan McCrum noted that this lack of investment has crushed capital expenditures globally: “At 8.1 per cent of GDP, G4 capex is still below the trough set in the 2001/2002 recession.” Companies are also not, it seems, buying other companies; M&A activity as a percentage of global market cap is at a more than 10-year low. McCrum calls this “a bull market without buyers”.
Back in September, Matt Yglesias looked at two of the biggest corporate debt deals of the year -- Apple and Verizon’s record-setting bond issuances -- and slammed the world’s executive class for giving up on investing. Today, Yglesias takes aim at a trend he sees as even worse than buybacks: dividends. Even with its shares near a record high, 3M today announced it was raising its dividend by a third and buying back $22 billion in shares over five years. Bob Pisani notes that dividends have been growing faster than per-share earnings. Impatient CEOs, Yglesias argues, have been rewarding shareholders -- and themselves -- with buybacks and dividends, at the expense of customers:
The impatient move that would benefit the economy would be for a cash-rich firm with an already high share price to invest. Hire more people and do more stuff, upgrade the training of your existing workforce, reward your better employees with raises and bonuses so they don’t go elsewhere, cut prices to build customer loyalty.
-- Ryan McCarthy
On to today’s links:
Takedowns
"Corporatism" and misunderstanding the government's role in economy - Mike Konczal
Billionaire Whimsy
The accidental estate tax break that saves wealthy Americans billions - Bloomberg
Must Read
The for-profit college that intentionally placed grads in temp jobs to game its job placement stats - Chris Kirkham
Demographics
Visualizing global migration trends using Facebook data - Facebook
Financial Arcana
Pricing as innovation and cell phone companies - Horace Dediu
Long Overdue
GlaxoSmithKline will no longer pay doctors to promote its drugs - NYT
Old Normal
The perfectly acceptable fad of collecting human remains - Laphams
Classic Bess
Bank of America: Sorry about the foreclosure. Here, have an Applebee’s gift card on us - Dealbreaker
Popular Myths
Re: those dead houseplants — it's not you, it's your wifi router - Daily Dot
Alpha
Defendant's wife decides against wearing fur, diamonds to insider trading trial - NYP
Listicles
The best names in college lacrosse - Inside Lacrosse
Still Right
"CNBC: 'Anyone Who Owns A Suit Can Come On Television'" - The Onion
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