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.”

Record Trillion-Dollar Buyback Pace Draws Fresh Ire From Schumer

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.

Record Trillion-Dollar Buyback Pace Draws Fresh Ire From Schumer

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.

Record Trillion-Dollar Buyback Pace Draws Fresh Ire From Schumer

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

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