STREET DOGS

Apple has spent $20.8bn buying back its own stock and so far in 2018 has tripled its share repurchases over the first half of 2017.

S&P 500 companies are on track to return a record $1-trillion via buybacks and dividends to shareholders in 2018.

Why are these companies spending money on buying back their shares rather than on, say, research and development? The official answer is they are doing shareholders’ bidding, returning the “free cash flow” after profitable investment opportunities have been exploited. Unofficially, say critics, their vast stash of stock options gives them an irresistible incentive to do buybacks to boost share prices even if they undermine long-term value.

“The actions disproportionately favour senior management and direct funds away from corporate investment, job creation, or higher worker pay,” says Forbes.

Simon Caulkin wrote in The Guardian 10 years ago how those companies that had spent the most on buybacks ahead of the credit crunch were the same companies that afterwards went cap in hand for cash injections. Fannie Mae and Freddie Mac spent $10bn on their own stock in the three years to 2007, Bear Stearns $6bn. Merrill Lynch bought back $14bn of its shares in 2006/2007, Lehman $5bn.

“Free cash flow is about as free as a free lunch,” wrote Caulkin. “It wasn’t free for the 850 scientists that GlaxoSmithkline made redundant at the time to save a sum dwarfed by the £12bn twoyear share buyback programme it launched the year before.”

The Observer business editor Ruth Sunderland wrote: “Huge rewards for the few; downsizing, outsourcing, loss of pension and job security for the many, all in the name of the implacable efficiency of the capital markets.”