Tuesday, October 7, 2014

Giving Money Back to Shareholders

There are two primary ways companies can put their money into their investors' hands. They can pay dividends, or they can buy back their own shares, which reduces the number of shares on the market, increasing the price of each one. And they've been doing a lot of both lately: According to Bloomberg, companies in the S&P 500 are expected to spend $914 billion on share buybacks and dividends this year. That's about 95 percent of all their earnings.

S&P 500 companies will spend $565 billion on repurchases this year, according to estimates from S&P. They will spend $349 billion on dividends, raising them by 12 percent. It's no surprise that money returned to stock owners in these ways exceeded overall profits in the first quarter and may do so again in the third.

It's not just current profits that are funding all these buybacks and dividend payouts. Companies in the S&P 500 are sitting on $3.59 trillion in cash and marketable securities, and want to put that money to good use.

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