US Companies are paying shareholders more than they can afford
Dividends and buybacks have exceeded free cash flow levels since 2013
Source: Capital Group. Universe is made up of 2,902 non-financial US-based companies that represent more than 98% of the US public equity market. As at 31 December 2018.
Imagine a household budget where the money flowing out exceeds the money coming in by 10-15% each year. Just like drinking too much, this might be fun in the short term, but it usually leads to a hangover.
This is a good analogy for Corporate America. This month’s chart considers nearly 3,000 of the largest listed non-financial companies in the US. The data shows these companies have been paying out more than their free cash flow since 2013, almost seven years!
