Consequences of S&P 500 companies strip-mining their equity

July 4, 2014

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“… during the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income. That’s right, 95 cents of every dollar they earned—including the huge gains from restructurings, downsizings and job terminations—was flushed right back into the Wall Street casino.”
This is another massive unintended consequence induced by Federal Reserve policy. Incentives are clear, but long term consequences are troubling. Have S&P 500 companies been strip-mining equity until their balance sheets become depleted? Is Radio Shack the canary in the coal mine? Time to take extra care of corporate credit risk.

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