{"id":13396,"date":"2016-05-25T03:25:01","date_gmt":"2016-05-25T07:25:01","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=13396"},"modified":"2016-05-25T03:25:01","modified_gmt":"2016-05-25T07:25:01","slug":"stock-buybacks-short-term-gain-long-term-pain","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2016\/05\/25\/stock-buybacks-short-term-gain-long-term-pain\/","title":{"rendered":"Stock buybacks: Short-term gain, long-term pain"},"content":{"rendered":"<p>Companies are maintaining stock buybacks and dividends payouts despite falling earnings. Combined buybacks and dividend payouts for S&amp;P 500 corporations exceeded earnings by an estimated $572 billion for 2015.<\/p>\n<p>The chart below illustrates how stock buybacks, for S&amp;P 500 stocks, have grown to exceed dividend payouts. The combined figure now exceeds earnings, leaving nothing for investment. The only way to make up the shortfall is to raise debt.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"S&amp;P 500 Stock Buybacks and Dividends compared to Earnings\" title=\"S&amp;P 500 Stock Buybacks and Dividends compared to Earnings\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-spx-buybacks.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>Private nonresidential fixed investment (which excludes inventory increases) is declining as a percentage of GDP.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"Fixed Investment\" title=\"Fixed Investment\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-investment.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>And corporate debt is rising relative to profits.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"Nonfinancial Corporate Debt v Profits\" title=\"Nonfinancial Corporate Debt v Profits\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-debt-profits.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>But rising debt is not a recent development. Corporate debt has been growing since interest rates started to decline in the 1980s, doubling the corporate debt level as a percentage of GDP.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"Nonfinancial Corporate Debt v 10-year Treasury Yields\" title=\"Nonfinancial Corporate Debt v 10-year Treasury Yields\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-debt-tnx.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>Corporate profits have also grown dramatically, even when adjusted for inflation. But some of this increase is attributable to unsustainable low interest rates.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"Corporate Profits in 2009 Dollars\" title=\"Corporate Profits in 2009 Dollars\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-profits-deflator.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>And the more debt grows, the more unsustainable corporate profits become.<\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" width=\"525\" height=\"359\" alt=\"Corporate Profits \/ Debt\" title=\"Corporate Profits \/ Debt\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2016\/2016-05-25-profits-debt.png?resize=525%2C359&#038;ssl=1\" \/><\/p>\n<p>The graph above shows corporate profits as a percentage of corporate debt (excluding banks and other financial corporations). The lower the level, the greater the risk.<\/p>\n<p>University of Massachusetts economics professor William Lazonick <a href=\"https:\/\/secure.marketwatch.com\/story\/stock-buybacks-blamed-for-lack-of-us-prosperity-2014-09-02\" target=\"_blank\">warned in 2014<\/a> that companies were forsaking new investment in favor of stock buybacks. His conclusion was that corporate executives are lining their own pockets:<\/p>\n<blockquote><p>\u201cCorporate executives give several reasons &#8230;..But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.\u201d<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Companies are maintaining stock buybacks and dividends payouts despite falling earnings. Combined buybacks and dividend payouts for S&amp;P 500 corporations exceeded earnings by an estimated $572 billion for 2015. The chart below illustrates how stock buybacks, for S&amp;P 500 stocks, have grown to exceed dividend payouts. The combined figure now exceeds earnings, leaving nothing for &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2016\/05\/25\/stock-buybacks-short-term-gain-long-term-pain\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Stock buybacks: Short-term gain, long-term pain&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[57,34],"tags":[3249],"class_list":["post-13396","post","type-post","status-publish","format-standard","hentry","category-stock-markets","category-us-canada-countries-regions","tag-stock-buybacks"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Stock buybacks: Short-term gain, long-term pain - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stock buybacks: Short-term gain, long-term pain - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Companies are maintaining stock buybacks and dividends payouts despite falling earnings. Combined buybacks and dividend payouts for S&amp;P 500 corporations exceeded earnings by an estimated $572 billion for 2015. The chart below illustrates how stock buybacks, for S&amp;P 500 stocks, have grown to exceed dividend payouts. 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Long-term treasury yields are falling, with the 10-Year breaking support at 2.55\/2.60 percent. Expect a test of 2.0%. While the initial reaction of stocks was typically bullish,\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4792,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/07\/08\/sp-indices-sp-500-stock-buybacks-decrease-for-first-time-since-q2-2009\/","url_meta":{"origin":13396,"position":1},"title":"S&#038;P 500 dividend yields signal oversold?","author":"Colin Twiggs","date":"July 8, 2012","format":false,"excerpt":"Historically the S&P 500 was considered overbought -- and ripe for a bear market -- when the dividend yield dropped below 3 percent. A surge in share buybacks in the past two decades, however, disrupted this relationship, with the dividend yield falling close to 1.0 percent in the Dotcom era.\u2026","rel":"","context":"In &quot;Earnings &amp; Dividends&quot;","block_context":{"text":"Earnings &amp; Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":45076,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/01\/debt-reduction-buybacks-and-sp-500-p-e-multiples\/","url_meta":{"origin":13396,"position":2},"title":"Debt reduction, buybacks and S&#038;P 500 P\/E multiples","author":"Colin Twiggs","date":"November 1, 2023","format":false,"excerpt":"There is a rising trend -- especially in the telecommunications, utilities, and REITs sectors -- of selling off non-core assets and using the proceeds to reduce debt. Rising long-term interest rates are likely to accelerate this trend. Debt reduction reduces funds available for stock buybacks. This chart from S&P Dow\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"S&P 500 Buybacks","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-10-31-spx-buybacks.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-10-31-spx-buybacks.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-10-31-spx-buybacks.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":19788,"url":"https:\/\/thepatientinvestor.com\/index.php\/2020\/02\/14\/a-worm-in-the-apple\/","url_meta":{"origin":13396,"position":3},"title":"A worm in the Apple","author":"Colin Twiggs","date":"February 14, 2020","format":false,"excerpt":"Apple Inc (AAPL) enjoyed stellar growth over the past 12 months, jumping more than 50%. But is that due to solid operating performance or window-dressing, with almost $140 billion of stock buybacks in the last two years? Free cash flow \u2014 operating cash flow less stock compensation and investment in\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7555,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/04\/24\/dr-eds-blog-dividends-buybacks-the-bull-market-excerpt\/","url_meta":{"origin":13396,"position":4},"title":"Dr. Ed&#8217;s Blog: Dividends, Buybacks, &#038; the Bull Market (excerpt)","author":"ColinTwiggs","date":"April 24, 2013","format":false,"excerpt":"Ed Yardeni highlights that a surge in dividends and share buybacks is driving the current bull market: Most importantly, during the current earnings season, US corporations continue to announce dividend increases and more share buybacks. Previously, I\u2019ve shown that this corporate cash flow into the stock market--which totaled $2.1 trillion\u2026","rel":"","context":"In &quot;Earnings &amp; Dividends&quot;","block_context":{"text":"Earnings &amp; Dividends","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/investing\/earnings-dividends\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18555,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/07\/20\/buybacks-are-hurting-growth\/","url_meta":{"origin":13396,"position":5},"title":"Buybacks are hurting growth","author":"Colin Twiggs","date":"July 20, 2019","format":false,"excerpt":"Preliminary Q1 results from S&P Dow Jones Indices show S&P 500 dividends and buybacks continue to exceed reported earnings in the first quarter of the current year. While this could be a spill-over of offshore funds repatriated as a result of the 2017 Tax Cuts and Jobs Act, companies have\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/13396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=13396"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/13396\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=13396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=13396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=13396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}