Record Stock Buybacks Financed by Borrowing: Q1 2006
Posted By John Schroy On 16th June 2006 @ 08:27 In Corporate Bonds, Equities, Corporate Managers | No Comments
Disbursement of corporate cash through dividends and stock buybacks totaled $1,073.5 billion in Q1 2006 (annualized quarterly data), compared to net corporate profits after tax of only $509.5 (also, annualized quarterly data), according to the Federal Reserve flow of funds accounts for [1] Nonfarm Nonfinancial Corporate Business.
This massive distribution of corporate cash that exceeded net profits after tax, was financed by borrowing with credit instruments (mainly bonds and mortgages) and by drawing down reserves for depreciation. Increased borrowing through credit instruments for the quarter (annualized) amounted to $232.1 billion.
The low point in cash dividends seen in Q3 2005 ($179.3 billion) was dramatically reversed in Q1 2006, with dividends reaching $486.7 billion (quarterly, annualized).
It seems unlikely that corporations will be able to continue to simultaneously increase dividends, buybacks, and borrowings at a rate faster than net profits after taxes for much longer.
The use of borrowed funds to buy back corporate stock and thereby boost prices and give value to stock options would seem the height of executive profligacy, imprudent management, and fiduciary failure, but never mind … fiddle-de-dee … tommorrow is another day.
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Article printed from Capital Flow Watch: http://capital-flow-analysis.com/capital-flow-watch
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[1] Nonfarm Nonfinancial Corporate Business: http://www.capital-flow-analysis.com/flow-of-funds/F102.htm
[2] bond issues: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=bond-issues
[3] corporate bonds: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=corporate-bonds
[4] Corporate Managers: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=corporate-managers
[5] Equities: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=equities
[6] fiduciary responsibility: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=fiduciary-responsibility
[7] stock buybacks: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=stock-buybacks
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