Nothing shows how America’s reins are held than our out-of-control corporations, enriching their executives at the cost of the future of their businesses – and ours. Here’s another status report on this sad but fixable story.
The Q2 Buybacks Report by FactSet is, as usual, sobering reading. During the 12 months ending in June, companies in the S&P 500 spent $555.5 billion repurchasing their shares. For the first time since October 2009, buybacks exceeded free cash flow (cash flow after capex); they’re borrowing to buy back shares.
For the past two years buybacks have run at the fantastic rate of about $120 billion per quarter – the same rate as in 2006-2007, with tech companies the leaders. In 2014 they spent 95% of their profits on buybacks and dividends (building the future is somebody else’s problem in corporate America).
Investors applaud this as a boost to share prices. Surprising to the naive, a decade of buybacks has reduced the S&P 500’s share count by only 2%. Share buybacks are one part of the triangle trade that transfers vast fortunes from shareholders to senior executives using stock options:
This post was published at Wolf Street by Fabius Maximus ‘ October 8, 2015.
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