Tags: Fink | buybacks | dividends | capital

BlackRock's Fink: Massive Share Buybacks and Dividends Aren't All That

By    |   Wednesday, 15 April 2015 07:20 AM

Share buybacks and dividend increases are all the rage among major companies these days, with spending on that return of shareholder capital totaling almost $1 trillion last year.

But Blackrock CEO Laurence Fink doesn't see that as a good thing. The spending, much of it in response to prodding by activist investors, often isn't in the companies' best interests, he says.

"The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy," he wrote in a letter to corporate CEOs that he shared with The New York Times.

Instead of focusing on return of capital, companies should stress investing in "innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth," Fink argued.

The current policy "sends a discouraging message about a company’s ability to use its resources wisely and develop a coherent plan to create value over the long term," he wrote.

Meanwhile, the advocacy group Citizens for Tax Justice has released a report detailing 15 Fortune 500 companies that don't pay any taxes.

The list includes CBS, General Electric, Interpublic Group, JetBlue Airways, Mattel, Owens Corning, PG&E, Pepco Holdings, Priceline.com, Prudential Financial, Qualcomm, Ryder System, Time Warner, Weyerhaeuser and Xerox.

As a whole, the 15 companies paid no federal income tax on $23 billion in profits in 2014, and they paid almost no federal income tax on $107 billion in profits during the past five years. All but two received federal tax rebates in 2014, and almost all paid exceedingly low rates over five years.

For example, CBS had $1.8 billion in U.S. profits last year, and received a federal income tax rebate of $235 million, while Mattel, which has paid zero federal income taxes for the past five years, received a tax rebate of $46 million in 2014.

"The scope of corporate tax avoidance spans a wide variety of economic sectors. Moreover, the tax breaks that have allowed these companies to be so successful in their tax avoidance are, by and large, perfectly legal, and often have been on the books for decades," the report states.

So what's the solution?

"A sensible starting point should be to critically assess the costs of each of these tax breaks and to take steps to ensure that profitable corporations pay their fair share of U.S. taxes," the study says.

"The next step is just as important. The revenues raised from eliminating corporate tax subsidies should not be given right back to corporations in the form of tax-rate reductions, as corporate lobbyists and their allies inside the Washington Beltway preposterously argue."

So where should this money go? "As the vast majority of Americans understand, these desperately needed revenues should be used to address our nation's fiscal problems and to make critically needed public investments in our nation's future," the report argues.

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Share buybacks and dividend increases are all the rage among major companies these days, with spending on that return of shareholder capital totaling almost $1 trillion last year.
Fink, buybacks, dividends, capital
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2015-20-15
Wednesday, 15 April 2015 07:20 AM
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