A wave of buybacks and dividends is expected to enrich shareholders of the biggest American companies by a record US$1 trillion.
The shareholder returns are being fueled by concerns over the global economy which are driving down expectations for capital investment growth, the Financial Times reported Monday.
Shareholders received more than US$903 billion 2014 — US$350 billion in dividends and US$553 billion in share buybacks — according to S&P Dow Jones data.
Buybacks are expected to rise at a double-digit rate this year.
Dividends have climbed on average 14 per cent annually over the past four years and many strategists expect the pace to continue this year, which would put returns at just above US$400 billion.
Goldman Sachs is forecasting buybacks to reach US$604 billion. Combined, returns would surpass the US$1 trillion mark for the first time in US history.
The combination of slowing emerging market economies, concerns about the pace of the recovery in some developed markets and falling oil prices are tamping down investment expectations.
This has prompted US blue chips to shift their focus, becoming the largest buyers of shares on the S&P 500 since the financial crisis, dwarfing domestic investors and helping propel the ageing bull market into its seventh year.
“There are tremendous amounts of cash on the books and you have this very slow nominal growth in most countries, so there are fewer places to deploy that cash,” said Russ Koesterich, BlackRock’s global chief investment strategist.
The $1 trillion figure has been primed by General Electric’s announcement on Friday that it will return some US$90 billion to shareholders over the next three years as it disposes of the vast majority of its financial business.
And analysts are expecting Apple to lift its program later this month, with Credit Suisse estimating the iPhone maker could increase its existing US$130 billion scheme, which runs over several years, by 50 per cent.
Some companies that are generating strong profits, such as Apple, have also come under pressure in recent years from investors pushing for a greater slice of the pie.
With record cash levels of US$1.3 trillion in 2014, companies believe increasing returns to shareholders is “ the right thing to do versus just hoarding the cash”, said Nicholas Colas, chief market strategist at Convergex.
– Contact us at [email protected]