U.S. corporate spending on areas like share buybacks is set to spike this year after cash rose to record levels during the pandemic, according to Moody’s Investors Service.
Non-financial company cash holdings in the U.S. rose 32% last year to an unprecedented $ 2.15 trillion, prompting them to spend more on capital investments, dividends, acquisitions and share buybacks, Moody’s said in a report this week. Most of the record liquidity is held by investment grade companies, with total holdings tripling since 2007.
“With business sentiment improving, albeit mixed, we expect buybacks from US non-financial companies to increase in 2021,” Moody’s said. The share buybacks were “significantly lower” in the past year in view of the difficult economic conditions caused by the pandemic.
Technology giants Apple Inc., Google parent company Alphabet Inc.
GoogL, + 0.53%,
MSFT, + 0.88%,
AMZN, + 0.86%
and Facebook Inc.
are the five Moody’s-rated companies with the most cash. The technology sector has the largest cash inventory at $ 888 billion, or 41% of total inventory, followed by retail, healthcare / pharmaceuticals, and manufacturing as the next highest cash flow industries.
“These four industries held $ 1.427 trillion, or 66% of total corporate liquidity, at the end of 2020,” Moody’s said.
In terms of creditworthiness, most of the record liquidity is held by companies in the Moody’s “Baa Bucket” that represent the lowest investment grade levels. This is the first time single-A-rated corporate borrowers did not hold the most cash, the report said.
The higher cash balance was driven in part by increased borrowing as companies tried to “bolster liquidity,” Moody’s said last year. “Debt has risen sharply” and is rising to a record level in relation to corporate profits.
“We expect total capital investment, dividends, acquisitions and share buybacks to increase by $ 1.8 trillion – $ 1.9 trillion in 2021,” Moody’s said. That’s a $ 1.7 trillion increase in 2020 as share buybacks and acquisition spending declined amid the economic lockdowns during the COVID-19 pandemic.
Share buybacks, net of issuance of shares, plummeted 36% to $ 229 billion last year, according to Moody’s. The credit evaluator said buybacks in 2020 were down 51% from a record high in 2018, the year when total corporate spending peaked at $ 2.13 trillion.
Buybacks have long been popular in technology stocks.
Tech companies conducted share buybacks for the 14th consecutive year in 2020, accounting for 92% of the total, according to the report. Apple
AAPL, + 0.29%
Last year alone, he bought back $ 76 billion of its shares, more than double the volume Alphabet bought, underscoring the dominance of technology in buybacks.
“The next two closest sectors were retail at $ 16 billion and healthcare / pharmaceuticals at $ 12 billion,” Moody’s said.