For all the obfuscation surrounding the topic of stock buybacks and corporations returning record amounts of cash to their shareholders [2], the bottom line is as simple as it gets.
This is what you are taught in CFO 101 class:
- if you see organic growth opportunities for your business, or if you want to maintain the quality of your cash-flow generating assets, you invest in (either maintenance or growth) capex.
- if there are no such opportunities, you return cash to investors (or, maybe spend a little on M&A unless you are Valeant in which case you spend everything and then much more).
That's it.
Well, based on this shocking chart from the FT's John Authers [3], does it seem that America's corporations - who are returning over a record 90% of Net Income to shareholders - are seeing (m)any growth opportunities?
[4]
