What Will S&P 500 Companies Do With $2.3 Trillion?VW Staff
The cash spending of S&P 500 will increase by 12% to $2.3 trillion in 2015, according to the latest report from analysts at Goldman Sachs. They estimated that investments (51% of spending) and return to shareholders (49% of spending) will grow by 10% and 14%, respectively next year.
S&P 500 Cash level remained at record high
In a note to investors, Goldman Sachs analyst Amanda Sneider and her team said the total cash level of the S&P 500 remained at record high at $1.4 trillion or 12% of assets excluding financials.
According to the analyst, the S&P 500 will continue to use huge amount cash on Capex at around $740 billion next year. Sneider and her fellow analysts suggested that its growth will slow down at 6% due global GDP concerns and declining oil prices will serve as an obstacle to investment plans.
Sneider and her team noted that the energy sector represents 24% of the total S&P 500 capex and R&D spending.
Cash return to shareholders will continue
The analysts believed that the trend of returning cash to shareholders will remain the focus of corporations. Sneider and her team estimated that the EPS growth of the S&P 500 will be sluggish at 5% in 2015.
Corporations are expected to return $1.1 trillion to shareholders. According to them, the growth of dividends will be approximately in line with earnings, but the stock buy backs will increase by 18% to around $707 billion next year. They estimated that dividends will increase 8% to approximately $402 billion and will the S&P 500 cash M&A is expected to continue to rise by 37% to $195 billion.
Sneider and his colleagues suggested the recent outperformance of companies with strong balance sheets will probably continue. However, the potential tightening of financial conditions and interest rate hike by the Federal Reserve “may constrain more aggressive spending.”
Buyback trends resumed
The analysts noted that the companies that spent most on buybacks outperformed the S&P 500 by more than 900 bp last year, but traded flat this year. The management of the corporation focused on capex.
Sneider and colleagues noted that the buyback trends resumed over the past several months. According to them, “The slow pace of recovery and recurring threat of economic stagnation has biased managements in recent years toward returning cash to shareholders. Although we expect a gradual shift toward investing for growth via capital expenditures and M&A as confidence in the U.S. economy grows, the popularity of dividends and buyback should continue…”