S&P 500 Companies Spend 95% of Profits on Buybacks, Payouts

[jonatha]

Raising wages?

It seems you are not familiar with the basic concept of what a business exists to do.

Borrow money to buy back stock?

 

[dismal]

So, what do you want? Corporations to hoard their cash? Invest it in becoming bigger and eviler?

You have never quite managed to explain why this is not exactly what they should be doing.

Read my OP again, I did say this is what they should be doing. Investing 95% of your profits, and sometimes even borrowing to do so, into stock buybacks and increased dividends is the perfect model to get money into the hands of job creators.

Paying out dividends/stock buybacks is not investing. It's returning money to investors. They can then invest the money in something else if they choose. Or they can spend it on booze and whores - or even waste it. But if they choose to invest it in something else they will probably want that something else to return money at some point. As it turns out the returning of money is an important reason why investors invest. If investments don't return money the system doesn't hold up real well.

 

[Playball40]

It is gambling because the small investor has absolutely no control over the outcome. They are gambling on the actions of others.



And past performance is not a guarantee of future performance.

What is your alternative? Since 1929, over a 25 year period stocks have provided the greatest return on investments compared to other options.

You want a CD at 1.25%?
Bonds that can go down in value if interest rates go up?
Real Estate that can take a crapper like in 2008?

Not unlike stocks went into the crapper in 2008??

 

[ksen]

Read my OP again, I did say this is what they should be doing. Investing 95% of your profits, and sometimes even borrowing to do so, into stock buybacks and increased dividends is the perfect model to get money into the hands of job creators.

Paying out dividends/stock buybacks is not investing. It's returning money to investors. They can then invest the money in something else if they choose. Or they can spend it on booze and whores - or even waste it. But if they choose to invest it in something else they will probably want that something else to return money at some point. As it turns out the returning of money is an important reason why investors invest. If investments don't return money the system doesn't hold up real well.

I know! And it's a great business growth model to send 95% of your profits out of the company so that people can use that cash to invest in other companies that return 95% of their profits back to the investors.

 

[Underseer]

Um, shareholders are not necessarily the wealthy. Indeed, if you are in he middle class you are likely a shareholder of many S&P 500 companies.

So because a tiny fraction of the shares are held by middle class people, it is not fair to say that this primarily benefits the aristocracy?

 

[dismal]

Paying out dividends/stock buybacks is not investing. It's returning money to investors. They can then invest the money in something else if they choose. Or they can spend it on booze and whores - or even waste it. But if they choose to invest it in something else they will probably want that something else to return money at some point. As it turns out the returning of money is an important reason why investors invest. If investments don't return money the system doesn't hold up real well.

I know! And it's a great business growth model to send 95% of your profits out of the company so that people can use that cash to invest in other companies that return 95% of profits back to the investors.

Let's imagine you had a great idea for a business and you were trying to get me to invest.

If I said "k, this looks like a great plan. But what do you plan to do with all the profits?"

What would your response be?

"Not give them to you!"

 

[Sajara]

I'd certainly not expect 95% of the profits to be going back to investors. For the sake of the continued growth of the company, I'd at least want a fair portion of the profits to go towards R&D, facilities, training of employees, keeping trained employees around (aka benefits and pay), etc. Not sure what a 'fair' portion of profits is to be considered though. I have heard that major companies typically put 5% towards R&D, but even that is just heresy.

 

[arkirk]

But it is only available to people who have money left for such investments, after they pay their rent, buy food to eat, and cover the other unavoidable costs of living. So it is a mechanism to get cash into the hands of the wealthy.

Which is everyone above the poverty line if they choose to live at the poverty line.

You still are calling poverty a matter of choice. You are very mistaken.

 

[arkirk]

I know! And it's a great business growth model to send 95% of your profits out of the company so that people can use that cash to invest in other companies that return 95% of profits back to the investors.

Let's imagine you had a great idea for a business and you were trying to get me to invest.

If I said "k, this looks like a great plan. But what do you plan to do with all the profits?"

What would your response be?

"Not give them to you!"

If he gave all the profits back to investors, that would mean he intended to go out of business. Why don't you ask sensible questions?

 

[dismal]

Let's imagine you had a great idea for a business and you were trying to get me to invest.

If I said "k, this looks like a great plan. But what do you plan to do with all the profits?"

What would your response be?

"Not give them to you!"

If he gave all the profits back to investors, that would mean he intended to go out of business. Why don't you ask sensible questions?

It's best not to try and insult someone while being clueless.

 

[dismal]

I'd certainly not expect 95% of the profits to be going back to investors. For the sake of the continued growth of the company, I'd at least want a fair portion of the profits to go towards R&D, facilities, training of employees, keeping trained employees around (aka benefits and pay), etc. Not sure what a 'fair' portion of profits is to be considered though. I have heard that major companies typically put 5% towards R&D, but even that is just heresy.

Most of those things are called "expenses". They are taken out before "the profits".

 

[arkirk]

So, what do you want? Corporations to hoard their cash? Invest it in becoming bigger and eviler?

You have never quite managed to explain why this is not exactly what they should be doing.

Raising wages?

There are some business models where this is an option. They are called cooperative businesses not for sale on the stock market. Some of them are doing quite well. They are worker controlled.

 

[ksen]

I know! And it's a great business growth model to send 95% of your profits out of the company so that people can use that cash to invest in other companies that return 95% of profits back to the investors.

Let's imagine you had a great idea for a business and you were trying to get me to invest.

If I said "k, this looks like a great plan. But what do you plan to do with all the profits?"

What would your response be?

"Not give them to you!"

My response would be "Of course I'll give you back at least 95% of the profits every year!"

Haven't I made that pretty clear in this thread so far?

 

[Axulus]

Which is everyone above the poverty line if they choose to live at the poverty line.

You still are calling poverty a matter of choice. You are very mistaken.

For those whose income is above the poverty line? Of course it is a choice for them to live at the poverty line. It is possible, but few choose to do it because they want a more comfortable lifestyle.

 

[Axulus]

Um, shareholders are not necessarily the wealthy. Indeed, if you are in he middle class you are likely a shareholder of many S&P 500 companies.

So because a tiny fraction of the shares are held by middle class people, it is not fair to say that this primarily benefits the aristocracy?

No, it is not fair. You are forgetting who benefits from having a wide variety of products available at reasonable prices that these companies produce and sell.

 

[ksen]

So because a tiny fraction of the shares are held by middle class people, it is not fair to say that this primarily benefits the aristocracy?

No, it is not fair.

You are forgetting who benefits from having a wide variety of products available at reasonable prices that these companies produce and sell.

This is true. And companies paying out 95% of their profits are going to have lots and lots products available with the vast amount of wealth they are putting in the hands of investors.

Paying out all of your profits to investors is truly the best growth model.

 

[Axulus]

No, it is not fair.

You are forgetting who benefits from having a wide variety of products available at reasonable prices that these companies produce and sell.

This is true. And companies paying out 95% of their profits are going to have lots and lots products available with the vast amount of wealth they are putting in the hands of investors.

Paying out all of your profits to investors is truly the best growth model.

You are using cherry picked data. Did it completely slip your mind that we just went through the worst recession since the great depression, where companies were hoarding cash in order to weather through tough times? Now that the tough times have passed, they can distribute out some of that cash that has accumulated.

 

[ksen]

I agree. And that makes perfect sense as to why some of the companies are borrowing the cash they are using to pay for buybacks and dividend payouts.

Increasing your debt load and paying out 95% of your profits is a recipe for guaranteed success.

And in case you didn't know:

Excluding the recession years 2001 and 2008, dividends and stock buybacks have represented, on average, 85 percent of corporate earnings since 1998.

16 years of paying out on average 85% of your profits. The Fed really should look into raising interest rates soon since the economy will probably be getting red hot any day now with all that cash going to investors.

 

[Axulus]

I agree. And that makes perfect sense as to why some of the companies are borrowing the cash they are using to pay for buybacks and dividend payouts.

Increasing your debt load and paying out 95% of your profits is a recipe for guaranteed success.

And in case you didn't know:

Excluding the recession years 2001 and 2008, dividends and stock buybacks have represented, on average, 85 percent of corporate earnings since 1998.

16 years of paying out on average 85% of your profits. The Fed really should look into raising interest rates soon since the economy will probably be getting red hot any day now with all that cash going to investors.

Another cherry picking tactic - looking at the profit payout policies of only the 500 largest companies (which have already had a _ton_ of growth throughout their history to achieve this rare status) among the millions of companies in the country. Yeah, that makes sense.

 

[ksen]

Obviously they got to be the largest companies by being such wise stewards of their yearly profits.

I urge them to continue these pro-growth strategies.