Record Trillion-Dollar Buyback Pace Draws Fresh Ire From Schumer

(Bloomberg) -- American companies are investing in their own stocks at a record pace, drawing a fresh attack from Senate Minority Leader Charles Schumer that President Donald Trump’s tax cuts were benefiting the wealthy.

After buybacks among S&P 500 Index members hit a record in the first quarter and more than a third of the index raised dividend payments, corporations have returned $992 billion to shareholders in the past 12 months. At the current rate, 2018 will mark the first year that corporate America showers investors with more than $1 trillion.

“This record surge is proof positive that the GOP tax law was a scam for the rich,” Schumer said in a statement. “As Democrats and many experts predicted, corporate executives and wealthy shareholders are reaping the benefits of the tax law at a never-before-seen rate, while workers and middle-class families are left largely in the dust.”

How companies use record levels of cash has become a hot-button issue after the Republican tax overhaul brought hundreds of billions of dollars of relief to corporations. These bonanzas for shareholders have been blamed for contributing to a widening wealth gap among Americans as more high-income families invest in stocks than low-income households.

According to Gallup poll published last year, nine out of 10 families with annual income higher than $100,000 own stocks, compared with a ratio of 1-in-5 for those earning less than $30,000 a year. While equities have added $22 trillion in value since 2009, wages stagnated and workers’ share of business income remained near record lows.

The buyback spree came as stocks entered the first correction in two years and the S&P 500 notched its worst quarter since 2015. While it bolsters a bull case for stocks at a time when rising bond yields diminish their attractiveness, the largess has also raised eyebrows among those criticizing chief executives for not spending as much on new plants or equipment, a strategy seen key to longer-term profit growth.

Turns out, companies are so flush they can boost spending on both activities. First-quarter spending on capital expenses jumped 21 percent to $159 billion -- a record for any start of the year.

“Cash remains near or at its highs, giving companies the ability to do whatever they want,” Howard Silverblatt, senior index analyst at S&P, said in a note.

Capital spending is a top priority, followed by paying bonuses to employees and returning cash to shareholders, according to a Bank of America survey of S&P 500 companies’ guidance.

Below are more details on S&P 500 companies’ cash use in the first quarter:

  • At $1.6 trillion, cash and cash equivalent stayed near all-time highs
  • Share purchases surged 34 percent to a record $178 billion, surpassing the previous peak of $172 billion reached in 2007
  • Tech companies accounted for about a third of total buybacks, with repurchases more than doubling from a year earlier; Apple set a record with $22.8 billion
  • Financial firms spent roughly the same as last year, a sign that Fed approved buybacks may have been fulfilled
  • No company cut its dividend for the first time in at least 15 years
  • Among those that raised payouts, the increase averaged 10 percent

©2018 Bloomberg L.P.

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