Mar 5, 2019

Companies prefer buybacks in wake of Trump tax cuts

Data: Institute of International Finance; Chart: Naema Ahmed/Axios

The gap between corporate buybacks and dividends is the widest it has been in 18 years.

Why it matters: Share buybacks soared, while total dividend payouts remained stagnant in the wake of the 2017 tax cut — at a time when the way companies use their profits to return cash to shareholders is under attack from both sides of the aisle.

  • Companies are opting to buy back stock rather than up dividends for tax reasons. Dividends are taxed as ordinary income, while buybacks are taxed at the lower capital gains rate — according to according to Emre Tiftik and Paul Della Guardia, economists at the International Institute of Finance.
  • Sen. Marco Rubio (R-Fla.) wants to change this. Earlier this year, Rubio said he'll introduce legislation that would make buybacks and dividends taxed on equal footing. There are many questions about how this would work.

Between the lines: Companies' preference for buybacks over dividends also speaks to the lack of confidence that extra profits are here to stay. If they hike dividends now, companies want to be sure they can continue to honor those payouts for years to come.

  • The pace of buybacks has already slowed since the beginning of 2019, IIF said, "as the impact of U.S. tax reform fades."
  • As Axios' Felix Salmon noted last year, it's easier for companies to dial back share buybacks than it is for them to cut their dividend.

Bonus: Last year, companies spent more buying back their own stock than on capital expenditures for the first time since 2008, according to Citigroup.

  • Still, as Bloomberg points out, over the last decade spending on capital expenditures like buildings or new machinery hit $6 trillion, much more than the $5.1 trillion spent on buybacks.

Go deeper: Stock buybacks will be a hot-button 2020 issue

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Bernie's juggernaut

Sen. Bernie Sanders speaks in San Antonio last night with his wife, Jane. Photo: Eric Gay/AP

Sen. Bernie Sanders won so big in the Nevada caucuses that Democrats are hard-pressed to sketch a way he's not their nominee.

Driving the news: With 60% of precincts counted (slow, but better than Iowa!), Sanders is running away with 46% of delegates — crushing Joe Biden's 20%, Pete Buttigieg's 15%, Sen. Elizabeth Warren's 10% and Sen. Amy Klobuchar's 5%.

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Buttigieg campaign claims Nevada caucuses were "plagued with errors"

Photo: Win McNamee/Getty Images

Pete Buttigieg's campaign wrote a letter on Sunday asking the Nevada State Democratic Party to release early vote and in-person vote totals by precinct and address certain caucus errors identified by campaigns, The Nevada Independent reports.

The big picture: The campaign alleges that the process of integrating early votes on caucus day was “plagued with errors and inconsistencies,” and says it received more than 200 incident reports from precincts around the state.

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Coronavirus threat grows, threatening some drug supplies

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens.

As the novel coronavirus continues spreading globally and China grapples with a limited production capability, there's a growing risk to about 150 prescription drugs in the U.S., sources tell Axios.

The big picture: The coronavirus has spread to more countries, with both South Korea and Italy stepping up emergency measures amid rising case numbers on Sunday. COVID-19 has killed at least 2,467 people and infected almost 79,000 others, mostly in mainland China.

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