David Kostin’s team put this out the other day for Goldman Sachs’s US Weekly Kickstart and I think it makes for some interesting food for thought. In the table below, you’ll see the firm’s expectations for where the S&P 500 companies will spend their wealth this year in pursuit of shareholder returns.
Corporate tax reform and strong EPS growth will drive a 15% increase in total S&P 500 cash spending to $2.5 trillion in 2018. Firms will invest $1.4 trillion (54% of the total) for growth and return $1.2 trillion (46%) to shareholders. Capex will grow by 11% and remain the single largest use of cash, fueled by strong revenue growth and CEO optimism. Share repurchases will increase by 23% to $650 billion.
Josh here – as you can see, the strategists believe the biggest percentage jump will occur in stock buybacks, which probably makes the most sense from a tax standpoint (dividends are double-taxed, first the corporation and then you) and a relatively big jump in cash spent for M&A. As for the CapEx / R&D expansion – notable, but doesn’t get us very materially higher than where we were in 2015, just a few years ago.
But of course, these are estimates based on corporate management discussions during Q4 earnings conference calls. Plenty of room to be surprised in either direction, as always.