American corporations are simply raking in profits. Some are so bloated and cash-rich they literally can't figure out what to do with it all. Apple, for instance, is sitting on nearly a quarter of a trillion dollars — and that's down a bit from earlier this year. Microsoft and Google, meanwhile, were sitting on "only" $132 billion and $63 billion respectively (as of March this year).
However, American corporations in general are taking those profits and kicking them out to shareholders, mainly in the form of share buybacks. These are when a corporation uses profits, cash, or borrowed money to buy its own stock, thus increasing its price and the wealth of its shareholders. (Big Tech is doing this as well, just not fast enough to draw down their dragon hoards.) As a new joint report from the Roosevelt Institute and the National Employment Law Project by Katy Milani and Irene Tung shows, from 2015 to 2017 corporations spent nearly 60 percent of their net profits on buybacks.
This practice should be banned immediately, as it was before the Reagan administration.
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"...buy its own stock, thus increasing its price and the wealth of its shareholders."
ReplyDeleteThat is what corporations are supposed to do, that is why people invest in a business. To increase their wealth. They don't invest in a business to lose money or for some SJW BS.
ReplyDeleteShareholders are the owners of listed corporations. Corporations returning a portion of the profits to shareholders via dividends, or buybacks usually draw more interest from prospective shareholders, which in turn holds or increases the price per share.
Buybacks are a two-edged sword since it entails selling some of your shares, which may alter tax status, and you have to go find another stock to invest in that has similar reward possibilities. For that reason, a dividend or dividend increase is more attractive to most long-term investors.
The problem is simple:
ReplyDeleteMost of these corporations are buying back shares with BORROWED MONEY! That is idiotic. The CEO is incentivized to increase the stock price, so he does what is NOT in the interest of the shareholders.
Get it?
4:24 if I can borrow money at 3% and get a return on that money of 6% then it is in my interest as a shareholder that this happens. Blame the FED and the government for cheap money, not the corporations. Also stock buybacks make a corporation less susceptible to hostile takeovers. A company will generally start buying back their own stock when they believe it to be undervalued.
ReplyDelete