In Defense of Share Buybacks

By Spencer Jakab of The WSJ. Excerpts:

"businesses that are told how to spend their money instead of putting it to its highest and best use ultimately hurt their shareholders and the economy by investing in dud projects. That’s especially true when politicians nudge them."

"Four large defense contractors—Lockheed Martin, RTX, General Dynamics and L3Harris—paid out $156 billion in the past decade combined via dividends and buybacks. That was more than three times their capital expenditures."

"Their return on invested capital—what they earned on the money not paid out—has averaged a little over 10% recently: good, but not as much as shareholders earned just redeploying contractors’ surplus cash into an index fund the past few years.

What would the returns have been if the companies had invested four times as much? Almost certainly lower."

"Defense companies would have had to diversify into products they didn’t understand as well."

"The overall proportion of their earnings returned to shareholders has been pretty steady over the decades"