stock buybacks 2019

Impact Of Trump Tax Cuts

Trump signed the Tax Cuts And Jobs Act on Dec. 22, 2017. The tax law cut the corporate tax rate from 35% to 21%, the lowest since 1939. It also allowed companies to repatriate $2.6 trillion held in foreign cash stockpiles, paying a one-time tax rate of 15.5% on the cash transfers.

American companies sent home about $570 billion in foreign cash during the first three quarters last year as a result, but $1 trillion remains abroad and the repatriation will likely continue in 2019, writes Lakos-Bujas. He suggests that given market volatility associated with the closing years of an economic cycle—and attractive valuations for stocks—companies will be inclined to spend the cash on buybacks, rather than mergers and acquisitions or raising dividends.

https://www./news/companies-arent-rushing-to-repatriate-overseas-cash/

Companies aren't rushing to bring home overseas cash

BY RACHEL LAYNE

SEPTEMBER 21, 2018 / 4:35 PM / MONEYWATCH

When Congress passed the sweeping tax cut legislation late last year, one of its promised benefits was what would surely be a massive amount of repatriation of U.S. corporate profits held overseas for years to avoid the U.S. taxes on those gains. And in the three months ended in June, U.S. companies brought back roughly $170 billion in overseas profits, according to government report released this week. 

That may sound like a lot, but it's far less than the $295 billion firms repatriated in the first quarter. The figure is about 17 percent of the the estimated $2.7 trillion held overseas, funds that have been stockpiled over years by huge companies such as Apple and Pfizer. Keeping profits earned overseas outside the U.S. helps companies cut their U.S. corporate tax bill, but they can't use those funds to invest at home.

The new tax law aimed to address that by using a lower, one-time 15.5 percent tax rate as an incentive to bring the funds back, with the idea that companies will invest in their U.S. operations, add jobs and boost the economy. President Donald Trump advocated for this portion of the law, predicting before the tax bill's passage that a mammoth $4 trillion would be repatriated.

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Earlier this week, The Wall Street Journal published an analysis of securities filings from 108 publicly traded companies that hold most of that $2.7 trillion, asking each company how it's using the money. About two-thirds of the $143 billion in public company repatriated funds the Journal identified came from two companies: Cisco Systems and drugmaker Gilead Sciences.

The paper noted that it's hard to tell how much of that cash can easily be brought back to the U.S., in part because companies do invest some profits earned overseas in offices, factories or people in the countries where they earned the profit. That means the funds are less liquid and harder to shift home, the Journal said, citing experts including Morgan Stanley analyst Todd Castagno.

Some companies that used to identify amounts held overseas in annual reports have stopped disclosing the information because the taxes on them are so low, the Journal reported.

A Federal Reserve report released earlier this monthfound the top 15 multinational companies accounted for about 80 percent of corporate offshore cash holdings. Some of the money appears to have been used so far for stock buybacks.

At those companies, which in turn had about 80 percent of their cash overseas, stock buybacks "spiked dramatically," the report said, rising to $55 billion in the first three months of 2018, up from $23 billion in the last three months of 2017, before the tax law had taken effect.

"Firms can also pay out cash to shareholders through dividends; however, unlike buybacks, dividends were little changed for the top 15 cash holders relative to the same period last year," the report's authors wrote. "Similarly, academic studies suggest that most of the repatriated funds during the 2004 tax holiday were used to fund share buybacks." 

That's a reference to the 2004 American Jobs Creation Act, which temporarily slashed the tax rate on repatriated earnings from 35 percent to 5.25 percent. About 9,700 companies took advantage of the tax break, bringing back $312 billion. Fifteen companies, led by Pfizer, Merck and Hewlett-Packard, accounted for 52 percent of the repatriated money.

First published on September 21, 2018 / 4:35 PM

BY MARK KOLAKOWSKI

 Updated Mar 6, 2019

The 2019 stock rally is being fueled by two largely overlooked catalysts: a 58% increase in stock buybacks and a 5-fold rise of inflows into ETFs in the last week alone, per data from Bank of America Merrill Lynch. Strikingly, this is happening as retail and institutional investors alike have been net sellers of shares, illustrated by $1.48 billion in single-stock sales in the week ending March 1, according to a detailed story in CNBC .

What's Driving The 2019 Rally

(A look at the week ending March 1, 2019)

• Buybacks were $1.4 billion

• Buybacks are up 58% year-over-year (YOY), on pace for a record year

• ETF net inflows were $854 million, more than 5 times the prior week

• Net sales of individual stocks were $1.48 billion

• This was the second straight week of net sales of stocks

• Institutions were net sellers of all sectors except materials and utilities

• Retail, or individual, investors were net sellers of every sector

• Both retail and institutional investors were net buyers of ETFs

Since 2009, S&P 500 companies have returned almost $5 trillion to shareholders through buybacks, contributing about 2% of their annual growth in earnings per share, the strategist says. As a result, the number of shares outstanding has fallen to a 20-year low.