US companies returned a record amount of cash to shareholders through stock buybacks and dividend payouts in the first quarter, continuing a trend that has helped drive the stock market's record-setting rally.
Stock buybacks and cash dividends reached $241.2 billion during the first three months of the year, exceeding the previous record of $233.2 billion set in the fourth quarter of 2007, according to S&P Dow Jones Indices. The new high is more than three times the $71.8 billion total that was returned to shareholders in the second quarter of 2009, when the economy was in the early stages of recovering from the financial crisis.
All-in investment-grade new issuance thus far in June is $91.13 billion (corporates plus SSQ ). It represents the second highest June IG total in history, with 2009's TARP-, TALF-, and FDIC-infested $119 billion in first place.
Backing out roughly $40 billion of "funny money" from June 2009 takes the number to $80 billion thereby firmly placing June 2014 atop the leaderboard. According to Ron Quigley, head of syndicate, Mischler Financial, that's quite an achievement for a month that has averaged $68.59 billion across the last decade.
When a company reaches the end of an investment or growth cycle, it needs to buy back stock or increase its dividend in order to manufacture higher profits or equity prices. The bond market is allowing companies to do this. The credit window is still wide open for companies -- any company -- to get whatever kind of financing they want at tight spreads. And choosing to invest in credit right now would be a mostly rational decision -- maybe not prudent, but rational. Speculative-grade default rates are at 2.1%, and high-grade debt ratios are not excessive.
The Buzz & Banter team found some incredible stats to go along with this data. If you annualize the first quarter's dividends and buybacks, they together equal almost $1 trillion of cash that's being pushed back into the equity market. For comparison, that's larger than Fidelity's equity mutual fund business, which has $791 billion in assets. Even the largest ETF on the planet, SPDR S&P 500 ETF Trust (NYSEARCA:SPY), only has a net asset value of $126 billion.
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