Sir Martin Sorrell Founder and CEO of WPP
Corporate America is shrinking—at least by one important measure. In five of the six quarters to June 2016, across the S&P 500, share buy-backs and dividends exceeded retained earnings. From around 60% in 2009, the ratio of payouts and buy-backs to earnings has risen inexorably, passing 100% at the beginning of 2015 and reaching a staggering 131% in the first quarter of 2016.
If you imagine the S&P 500 to be one company, that company ceased to grow at the start of last year and shrank by nearly a third in the first three months of 2016. While the FTSE 100 may not have gone into reverse, a similar trend can be observed. The dividend-payout ratio has climbed from less than 40% in 2011 to over 70% in 2016.........This cocktail of pressures is not conducive to long-term strategic thinking, and the financial world’s obsession with quarterly results doesn’t help. One survey revealed that nearly 80% of executives admit they would “take actions to improve quarterly earnings at the expense of long-term value creation”.....To Read More....
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