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Why There Is No Growth: The Entire S&P 500 Free Cash Flow Is Going Back To Shareholders
In perhaps the best example of just how massive the impact of returns to shareholders have become, Deutsche Bank shows a snapshot the S&P's consolidated income statement as of 1995 and 2015. While there are some clearly material changes transformations: the rise of financials' revenues above energy companies for one, the drop in net interest expense margin courtesy of ZIRP, the record high net income margin as a result of massive, if double seasonally-adjusted layoffs, one thing stick outs: virtually all of the corporate Free Cash flow in 2015 will go back to shareholders, as dividends and buybacks represent 94% of total S&P FCF uses.
Contrast this with "only" 60% of FCF in 1995 going back to shareholders and one can see why the US economy is caught in secular contraction in which virtually nobody wants to invest for the future and instead is forced to distribute all unretained earnings here and now.
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Dat's right
Take the money and run!
In this new bizarre world the CapEx has become racist a bigoted word. ;-)
Looney
invest in your corporation? who of the executive are gonna be around to see the results?
"more buybacks than dividends"
dividends don't return value to stakeholders
it's baffling why anybody pays dividends at all
All the free cash flow going to buybacks and dividends is not a problem, it is a symptom. It is not a failure of capitalism, it is a sign that the capitalists are reacting rationally to the reality that we now live under socialism. Investing in future growth only makes sense if there's actually going to be future growth. The markets are literally saying "well, it was good while it lasted, time to blow all my savings before I die". Unfortunately, few are listening.
The only results they care about is the value of their stock options. And what better way to boost that than a buy-back?
A buy-back is the exact inverse or opposite of a rights issue.
Why waste capital on capex when there's absolutely no chance in hell of any demand growth happening?
This is just the final stages of the wealth transfer from formerly productive corps to financial corpses.
An Exodus? More like take the money and run!
http://en.wikipedia.org/wiki/The_Exodus
You can't have capex without being a capitalist...so you're right.
lol it's ok, they will have an all inclusive marriage chapel in the FEMA camps so anyone can marry or who or whatever they want. you'll need it to get tax breaks and food credits.
it used to be called skimming and in any truly moral and ethical world it would be called theft. since it is legal there are no moral or ethical considerations.
There is nothing wrong with returning earnings to shareholders, unless your business model is based on accounting fraud and government/Central Bank subsidies. . . oh wait . .
With CDs at your bank paying nothing, and government bonds paying little more, it virtually forces people who need yield into buying rental housing or into stawks for the divvies. And who 'front run' those?
Get it .... before the .... gubmint does .... self defense is a right !
Divesting from SA and Israel .... why not divest from Obama Inc. ?
"In Go(l)d We Trust !"
FCF = CFO less CapEx
CFO = NI + Deprecition - NWC
Options for FCF (after funding CapEx) -
(1) Repay debt
(2) Dividends
(3) Stock repurchases
(4) Increase cash & equivalents
Not sure I understand the hyperbole around the 94% of FCF being returned to shareholders. Only an issue if companies are eliminating growth capex and funding at a maintenance level. As I understand it, most companies are returning capital to shareholders well in excess of FCF by substantially increasing leverage. That's the problem.
From what I've read, capex isn't even being invested at a maintenance level. But without any real demand (based on real savings), there's no reason to "invest" in your company.
Producers are now nothing more than financial entities, leveraging their credit rating as they spiral down.
b o r r r --- i n g.... Just B T F D. y a w n...
Every company I ever worked for looked at it this way.
You do major capital projects / investments when
1. You are almost out of capacity
and
2. You expect your sales will grow and you will need to add capacity or you will not be able to fill orders
You can always find a way to squeeze and extra couple % - VS making a giant investment. So unless you see high growth - you just do small incremental projects.
Which industry is running at (or close to) capacity?
Is anyone growing fast enough that they think the near term sales growth will out pace their ability to produce?
No one just says - let's build a few factories and expand our capacity - even though we have extra capacity already and our sales are only growing 2%.
Almosyt every company in the SP500 could invest in growth around the world. Are you telling me that Coke cant sell more soda in China, Africa, etc? Only a few capitol intensive/comodity intensive opererations may have some limits to their current growth. The "reinvestemt" in existing shares is primarily greed on behalf of stock and otpion holders in corporate management, etc. I have no problem with a CEO making ANY large amount of money but tie the income to REAL corporate growth NOT accounting and stock gimmicks.
I bet they can't sell more Coke profitably. Any fool can burn through capital to increase sales.
When was the last time you were in a store that was short of soft drinks?
Soda sales have been almost flat the last few years.
If you were in charge you would be breaking ground on new bottling plants?
Cash is trash...return the trash back to the shareholders...
I find it more interesting that is you take the same effective tax rate the profit margin for 2015 is lowered to 6.9%, from 9%, more in line with 1995, 6% (and historical standards). Likewise, adjust for substantially lower interest rates and you account for the entire increase in net profit margins. Bottom line, less gross profit, less interest expense and a a lot less taxes. Mystery solved.
We should stop blaming corporations. If you're running a public company and the Fed is making loans at a real interest rate of zero, you must return capital to shareholders. If you don't load up on debt to buyback shares someone else will load on debt to buy your shares, elect hostile board members, take you private, whatever. Public corporations are taking the only rational course open to them with money mispriced.
Yup, don't hate the player, hate the game. Honest businesses cannot compete with the free money club.
Sexy