Buybacks to Top Use of S&P 500 Companies’ Cash in 2019
S&P 500 companies will increase cash spending by 13% to $3-T in Y 2019, with buybacks again expected to represent their largest use of cash, according to Goldman Sachs (NYSE:GS).
Of the estimated cash spending in Y 2019, S&P 500 companies will allocate 51% to invest in growth, including capital expenditures, research and development and cash acquisitions, while 49% will go toward returning cash to shareholders through buybacks and dividends, Goldman strategists wrote last Thursday.
For Y 2018, total S&P 500 cash spending is rising by 19%, the fastest pace since Y 2011, they wrote.
The increased cash spending follows last December’s biggest overhaul of the US tax code by Congress in over 30 years. The new tax law slashed the corporate income tax rate and charged multinationals a 1-time tax on profits held overseas.
Goldman strategists expect S&P 500 buybacks to climb by 22% to $940-B in Y 2019 Vs 2018’s estimated at $770-B.
Capital expenditures are expected to increase by about 9% from an estimated $715-B in Y 2018 to $780-B in Y 2019.
“In the near term, we expect companies prioritizing buybacks and dividends will continue to outperform firms investing for growth,” Goldman wrote. “Returning cash to shareholders is a winning long-term strategy and performs best when GDP growth is as strong as in 2018.”
The US Commerce Department confirmed last week that GDP (gross domestic product) grew at a 4.2% annualized rate in Q-2, the fastest pace in nearly 4 years.
Goldman estimated that about $525-B of the $3-T in spending will go toward dividends in Y 2019, up from an estimated $495-B in Y 2018.
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