Buybacks Announcements Spike: Shareholders, Not Workers Get Tax Break

A spike in share buyback and special dividend announcements reveals that companies will not use tax cuts for investment.

Those who thought the tax plan would lead to announcements of more hiring and investment have already been proven wrong.

In a strong hint at how a tax repatriation holiday is going to play out, Share Buybacks Announcements Spike already.

A spike in share buyback and special dividend announcements this week reveals that companies are more likely to use any money saved on an all-too-familiar item: shareholder returns.

Bank of America, Home Depot, Johnson Controls International, T-Mobile US , Ciena, and even Madison Square Garden Co. are among the companies to unveil new buyback authorizations this week, rushing in even before a final tax bill has been formulated.

“I expect a lot more announcements of rewards for shareholders,” said William Lazonick, professor of economics at the University of Massachusetts Lowell and director of the Center for Industrial Competitiveness.

Carmine DiCesare, a consultant at FactSet, said that [the 2004] holiday led to an estimated $300 billion–plus in earnings being repatriated to the U.S. However, a FactSet analysis of S&P 500 index SPX, +0.24% constituents showed that share repurchases nearly doubled to $202.7 billion in 2004 from $115 billion in 2003, while special dividends paid jumped nearly sixfold to $179.4 billion from $30.3 billion.

On the investment side, capital expenditures, which is what creates jobs and pumps money back into the economy, inched up just 3.5% to $385 billion in 2004 from $372 billion in 2003, DiCesare said.

Show of Hands

VIDEO: CEOs asked if they plan to increase their company’s capital investments if the GOP’s tax bill passes.
A few hands go up.
“Why aren’t the other hands up?” Gary Cohn asks.#WSJCEOCouncil pic.twitter.com/TD2oAlN27S

— Natalie Andrews (@nataliewsj) November 14, 2017