Why Companies Are Regretting Their Buyback Decisions

by Options Sensei |

Over the past few years, corporations have been on stock buyback binge, with the years from 2014 to 2019 having a total of $3.5 trillion.  That may come back to bite them.

The peak year for share repurchases was 2018 when it crossed over $1 trillion as companies used the extra-fee cash flow from the reduction in corporate tax rates to buy back stock rather than boost dividends or increase capital expenditures.

stock buybacks q3 2019

Some companies went so far as using the historically low-interest rates to borrow cheap money and apply it to buybacks.  Even “Apple (AAPL)” with its near $150 billion cash hoard decided to issue some $50 billion in debt to put towards the stock buybacks.  With stock prices climbing it seemed to offer a better rate of return.

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