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Companies Help Investors Cash Out


  • U.S. companies roll out generous share buyback programs that could provide a sufficient cushion should investors grow jittery about inflation and dump stocks
  • Share buybacks have the potential to fuel a longer rally, akin to the bull market between 2010 and 2019, on the back of cheap credit and ample cash hoards

Inflation roiling markets? Not to worry, the firm has your back.

After years of hoarding cash, American companies are back to rewarding investors again, many of whom are sitting on the very boards making these decisions.

With a war chest of cash and little to do with it, companies across U.S. industrial sectors have been buying back stock and raising dividends at a brisk clip, a sharp reversal from 2020, when such activities were either suspended or cut, as firms held on to liquidity, unsure of how much would be required to weather the pandemic.

But now that the U.S. economy appears to be reopening in earnest, listed U.S. firms have authorized some US$504 billion in share repurchases, according to data from Goldman Sachs (+2.77%) through May 7, the most during that period in at least 22 years.

U.S. companies also ramped up dividend payouts in the first quarter, according to data from S&P Dow Jones Indices, increasing payments by an aggregate US$20.3 bullion on an annualized basis, the largest quarterly increase since 2012.

Cash hoards among S&P 500 companies hit an all-time-high of US$1.89 trillion at the end of last year, according to data from S&P Dow Jones Indices, a nearly 25% increase from the end of 2019.

Many S&P 500 companies also issued a record-breaking amount of debt to fund those cash hoards to help bolster balance sheets as the outcome of the pandemic looked uncertain.

In recent weeks, companies including Apple (+1.98%) and JPMorgan Chase (+1.59%) have unveiled generous share buyback programs and investors will be looking to see if other firms reporting quarterly earnings this week will follow, including Walmart (+0.93%) and Cisco Systems (+0.78%).

Inflation continues to be a concern for investors, and while a dip in commodity prices helped stocks recover some lost ground last week, the higher than expected rise in consumer prices is hard to ignore.

Corporate share buyback programs could not have come at a better time by providing a key source of equity demand to help drive the market higher, even as investors jittery over inflation start dumping stocks again.

Historically, the eagerness of companies to buyback their own shares has been credited with helping drive the 11-year bull market that ended last year.

Between 2010 and 2019, S&P 500 companies poured nearly US$5.3 trillion into the stock market through share repurchases, according to S&P Dow Jones Indices data.

And with the U.S. Federal Reserve pledging to keep interest rates low till 2023, even at the cost of accepting higher levels of inflation, low borrowing costs, plus the prospect of share buybacks could provide a floor to selling activity.

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