Its Raining Cash for SP 100 Shareholders

by Vaishali Dedhia | April 18, 2016

Crude is finally showing signs of relief backed by better-than-expected Chinese trade figures. While I covered the ‘crude’ story about distressed US shale companies here, today I will talk about the overall positive sentiment in the investor community on account of the swelled cash levels in corporate balance sheets.

When we ran the S&P 100 companies’ annual report through our data consumption platform (DCP), it was evident that in the last 3 years, US companies have been more than eager to return cash to their shareholders through both stock-buybacks and dividends. 

Stock-Buybacks Lead the Way
According to the numbers revealed through DCP, more than 80% of the S&P 100 companies declared dividends as well as carried out stock-buybacks in the three years from FY 2013 to 2015. Together, these companies returned a whopping $1.76 trillion to their shareholders in this time, 43% of which were towards dividends and 57% towards stock-buybacks. Incidentally, the share of stock-buybacks has always been higher than the dividend payout for all three years. Last year alone, stock-buybacks among S&P 100 companies were at about 56% ($349 billion), a massive $70 billion more than the $279 billion that they spent on cash dividends. Click here for a companywise report.

Table 1: Analysis of S & P 100 Companies' Cash Balance and its related heads for a 3 year period

As the numbers show, 2015 saw a majority of the S&P 100 companies (#87) using a mixed-bag approach of dividend payouts and stock-buybacks to return cash to their shareholders. A small percentage of these companies were however, a little more cautious; while 6 paid only cash dividends (3 from the energy sector), and another 3 companies took only the stock buyback route (2 of these being from healthcare). There is one more category of companies though. Interestingly, this set which included the likes of Amazon, Berkshire Hathaway, Facebook and PayPal Holdings had no cash outgo towards dividends and/or share repurchases.

Are Companies Going Beyond their Means to Indulge Investors?
The trend for the year shows that though the income from investing and financing activities for these companies is negative, the operating income is propping up their strategy to keep paying out cash rewards to the investors.  Most of these companies have been able to do this since they possibly do not foresee a lot of capital expenditure in the future, largely on the back of low/stable demand.

However, in FY2015, a significant number (23 companies) chose to pamper their shareholders, going even beyond the operating cash generated - 7 of these are from healthcare and 5 from consumer services, along with a smattering from other industries. In my next post, I will cover these companies in greater detail in trying to interpret the signals from the S&P 100 companies.