NEW YORK (Reuters) – S&P 500 companies will increase cash spending by 13 percent to $3 trillion in 2019, with buybacks again expected to represent their largest use of cash, according to Goldman Sachs.
Of the estimated cash spending in 2019, S&P 500 companies will allocate 51 percent to invest in growth, including capital expenditures, research and development and cash acquisitions, while 49 percent will go toward returning cash to shareholders through buybacks and dividends, Goldman strategists wrote on Thursday.
For 2018, total S&P 500 cash spending is rising by 19 percent, the fastest pace since 2011, they wrote.
The increased cash spending follows last December’s biggest overhaul of the U.S. tax code by Congress in over 30 years. The new tax law slashed the corporate income tax rate and charged multinationals a one-time tax on profits held overseas.
Goldman strategists expect S&P 500 buybacks to climb by 22 percent to $940 billion in 2019 versus 2018’s estimated $770 billion.
Capital expenditures are expected to increase by about 9 percent from an estimated $715 billion in 2018 to $780 billion in 2019.
“In the near term, we expect companies prioritizing buybacks and dividends will continue to outperform firms investing for growth,” Goldman wrote. “Returning cash to shareholders is a winning long-term strategy and performs best when GDP growth is as strong as in 2018.”
The Commerce Department confirmed last week that gross domestic product grew at a 4.2 percent annualized rate in the second quarter, the fastest pace in nearly four years.
Goldman estimated about $525 billion of the $3 trillion in spending will go toward dividends in 2019, up from an estimated $495 billion in 2018.
Reporting by Caroline Valetkevitch; Editing by Leslie Adler