May 26, 2015

Firms Send More Cash Back To Shareholders

Vipal Monga, David Benoit and Theo Francis | MorningstarAdvisor

“U.S. businesses, feeling heat from activist investors, are slashing long-term spending and returning billions of dollars to shareholders, a fundamental shift in the way they are deploying capital. Data show a broad array of companies have been plowing more cash into dividends and stock buybacks, while spending less on investments such as new factories and research and development. Activist investors have been pushing for such changes, but it isn’t just their target companies that are shifting gears. More businesses sitting on large piles of extra cash are deciding to satisfy investors by giving some of it back. Rock-bottom interest rates have made it cheap to borrow to buy back shares, which can boost a company’s stock price. And technology-driven productivity gains are enabling some businesses to do more with less.”


“If they aren’t, then we have to worry about the impact,” says Yvan Allaire, the executive chairman of the Institute for Governance of Private and Public Organizations. “It has to be a fairly significant impact on the economy.”

Read more