According to Bank of America, U.S. corporations can save the country’s stock market by returning some cash to investors, writes Business Insider.
The bank estimates that U.S. corporations have $7.1 trillion in liquid assets that could be returned to investors through dividends and buybacks.
“Corporate debt levels are the lowest in decades, providing ample opportunity to reassure nervous shareholders,” Bank of America said.
The S&P 500 is down more than 15% since the beginning of the year, while the Nasdaq 100 is down nearly 30%, so investors are looking for any favorable stock properties to buy right now.
According to the bank, until corporations are friendlier, “shareholders will go on strike.” Investors want more dividend payouts instead of investments for the first time since COVID-19, and BofA analysts are more concerned than ever about free cash flow for payouts.
Today, share repurchases and dividend payments by U.S. companies are at 12-year lows, while 13% of S&P 500 firms have issued non-voting shares, leaving much of the control to senior management.
Stock splits are becoming more common, recent examples being Amazon , Alphabet and Tesla, and BofA expects their dividends to rise 13% this year.
“We expect companies will face the challenge of competing for shareholders through dividend increases and share repurchases in the face of lower earnings growth, reduced productivity and prospects for profitable capital expenditures,” BofA said in a statement.
Companies are also competing for talent in a tight labor market, and falling stock prices are not helping retain employees who receive stock-based compensation.
To capitalize on the likelihood of increased payouts to shareholders of U.S. corporations, BofA recommends investors buy ETFs that invest in companies that pay dividends, buy back their shares and have high free cash flow income.
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