Big firms invest more – in investors

NEW YORK – Flush with savings from lower tax bills and profits from a growing economy, big U.S. companies are spending a record amount buying back their own stock.

Stock repurchases hit $189.1 billion in the first quarter for the S&P 500, according to preliminary results from S&P Dow Jones Indices. That tops the prior record of $171.9 billion set during the summer of 2007, just before the Great Recession struck.

The robust buying of their own shares continues a yearslong trend where companies have returned more and more cash to their investors through buybacks and dividends. S&P 500 companies returned a total of $1 trillion to their shareholders in the 12 months through March, the first time they’ve passed that threshold.

Apple, Cisco Systems and other technology giants helped lead the way.

By buying their own stock, companies can limit the number of their shares available in the market, which in turn allows remaining shareholders to lay claim to a bigger proportion of profits. Critics, though, don’t like it when companies pay too high a price to repurchase their own shares, and the S&P 500 has quadrupled in value since hitting bottom in early 2009.

Some critics have also been pushing companies to spend more on investments and higher wages for workers, which would spur more economic activity, rather than returning it to shareholders.

“You saw a lot of money in the last several years go to stock buybacks and dividends, but with the unemployment market being as tight as it is, companies have to make investments to get more productive,” said Ann Miletti, a portfolio manager at Wells Fargo Asset Management.

Miletti expects companies to spend more on software and other products to get more efficient, which would lead to bigger profits for technology and industrial companies.

While stock buybacks are getting bigger, they aren’t happening uniformly across corporate America. They’ve become increasingly top heavy instead, and just 20 companies accounted for nearly half of all the S&P 500’s repurchases during the first quarter, at 49.5 percent.

Companies are raking in bigger profits after Congress overhauled the tax code by cutting rates for corporations and encouraging businesses to bring back cash that was parked overseas.

This article provided by NewsEdge.