Yesterday, in Market News, American Companies announced a record breaking $201.3 billion in stock buyback and cash takeovers during May.
The top 3 companies heading the buyback are led by Apple (AAPL), making up nearly half of the the total in tax returns at $100 billion, and promising to use all of it to purchase its own stock, although they never expressly stated when this buyback would occur. They were followed by, second in line, Micron Technology (MU) at $10 billion and Qualcomm (QCOM) at $8.8 billion.
The announcement of the buyback frenzy in May follows a trend that began in the first quarter of 2018, in which U.S. companies compensated by the reform purchased $178 billion in buybacks. This was an all time record high, beating the previous record of $172 billion in 2007, directly prior to the Great Recession.
Its very possible that total buybacks and dividends this year could top $1 trillion for the first time in history.
These company buybacks are a direct result of the US corporate tax cut law, which reduced the business tax rate from 35% to 21%. This law also includes giving companies a break on taxes owed when returning foreign earnings.
So how are these businesses spending the money they are receiving from these tax cuts? Well the answer depends upon the business. While some companies are buying back stocks to reduce the quantity of their outstanding shares, while boosting the prices of their stock. Other leading companies, like Verizon, are donating sums of $400 million to support middle school STEM programs, that aim to reach 5 million students with free technology resources by 2020. While companies like Walmart, Home Depot, Aflac, SunTrust, Wells Fargo and numerous other businesses, are using them to either raise wages, contribute to their employees 401 (K) plans or giving their employees a one time bonus.
Some critics of the tax reform bill believe all the companies should be using this extra wealth to create jobs and boost wages, rather then just using the money on stock buybacks.
However, the companies involved in the buybacks have been completely unfaltering in their defense of the decision, seeing it as a natural function of capital markets, and proper implementation of their capital.
Goldman Sachs is also in support capital spending, referencing companies like Kohl’s and Intel that have watched their stocks skyrocket since the 2016 election.
The chairman of the business round table Dimon, brought up the point that people may use the money returned to them by their employers to purchase homes or fund their own venture capital firms, resulting in positive contributions to U.S. economic growth.
“I don’t understand how anyone can say that’s a bad thing. That is coming from people who are basically ignorant.” stated Dimon. (CNN Money – New York) “Tax Cut fuels record $200 billion stock buyback bonanza”