May 31, 2018
A big debate after corporate tax cuts were passed in December was whether companies would spend the windfall on capital expenditures (“capex”), dividends, or share buybacks.
The answer, it appears, is “yes.” All three have increased significantly this year.
Credit Suisse reports that capex rose 24% in the first quarter to $166 billion, on pace for the highest level since 1995. Much of the spending is finally coming from outside the tech sector after a long period where most capex was tied to cloud and mobile computing spending.
Elsewhere, S&P reports that 169 S&P 500 members increased their dividends in the first four months of the year, while no companies cut their dividends. This hasnt happened since at least 2003 when records began.
S&P also reports that companies bought back $158 billion of their own stock during the first quarter, on pace for the largest amount in any quarter, with records dating to 1998.
While economists argue about what use of cash is most beneficial to the economy, the reality for investors is that dividends, share buybacks, and capex (if spent wisely), all benefit stock prices. The S&P 500’s “net payout yield” – the total amount of capital returned to shareholders in the form of either dividends or buybacks – stands at 3.6% today.
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