US Companies Accumulating Cash, Buying Back Shares Instead of Investing

by Park Pyunghee

Published 30 Apr.2021 14:20(KST)

[Photo by AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Bloomberg News reported on the 29th (local time) that the scale of share buybacks announced in the second quarter of this year has significantly increased.

During the earnings season in January this year, when the results for the fourth quarter of last year were announced, the scale of share buybacks by companies was $43 billion. This month, as companies announce their first-quarter results, the officially disclosed share buyback amount has reached $152.5 billion so far.

However, it is concentrated in specific companies. At least nine companies announced share buyback plans this month, but Apple and Alphabet announced share buybacks totaling $140 billion. These two companies account for 92% of the share buyback plans announced so far.

Alphabet, Google's parent company, announced a share buyback plan of up to $50 billion on the 27th. The next day, Apple declared a share buyback of up to $90 billion. Among S&P 500 companies, 80% have a market capitalization of less than $90 billion.

As can be seen from the share buyback plans, corporate cash holdings are increasing, centered on some companies, despite COVID-19.

According to Bloomberg Intelligence, the current cash holdings of S&P 500 companies stand at $2.7 trillion, a record high. FactSet Research estimated that as of the end of last year, U.S. non-financial companies held $2.11 trillion in cash. This is a 33.5% increase from $1.58 trillion at the end of 2019.

As corporate cash holdings increase, share buybacks are also rising. On the other hand, the simultaneous increase in corporate cash holdings and share buybacks indicates that companies are reluctant to invest. It also means that companies are worried about the future economy.