In a recent article they co-authored for The New York Times, Democratic Senate leader Chuck Schumer and Vermont senator Bernie Sanders justify what they describe as “bold legislation” they plan to introduce to address the “explosion” in corporate stock buybacks in recent decades.

The article contends that companies have become so focused on shareholder value that they have dedicated an ever-growing share of profits to dividends and share buybacks “rather than investing in ways to make their businesses more resilient or their workers more productive.”

Between 2008 and 2017, the article reports, 466 companies in the S&P 500 spent approximately $4 trillion on stock buybacks, an amount representing 53% of profits. “An additional 40 percent of corporate profits went to dividends,” the article says, adding, “When more than 90 percent of corporate profits go to buybacks and dividends, there is reason to be concerned.”

The article cites two reasons why this has become problematic:

  • “Stock buybacks don’t benefit the vast majority of Americans;”
  • “When corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages paid medical leave, retirement benefits and worker retraining.”

Schumer and Sanders assert that if corporations continue to buy back shares at this rate, it will lead to increased income disparity and lower productivity, and “the American worker will fall further behind.” Their bill would “prohibit a corporation from buying back its own stock unless it invests in workers and communities first.” The goal, they explain, is to “curtail the overreliance on buybacks while also incentivizing the productive investment of corporate capital.”

For more market trends, visit ETF Trends.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.