High Debt Maturities Bring Risk to the Endless Stock Buyback Addiction After 2018

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Now that 2018 is nearing an end, it is a serious time for investors to start thinking about expectations in 2019 rather than looking back at how choppy 2018 has been. One issue that has been front and center as a means of supporting stocks throughout this nine-plus-year bull market has been the endless stock buyback plans of corporate America.

Bolstered by repatriation and tax reform, companies have been more readily able than in prior years to access the full amount of their capital regardless of where it has been held. But what if there is something else that may get in the way of companies buying back endless amounts of common stock in the years ahead? It may be premature, but a serious wave of corporate debt maturities could become one catalyst that gets in the way of buying back billions and billions worth of stock at a time when interest rates have risen and the economic growth engine has started to slow.

It seems hard to imagine that so many large companies that are buying back billions of dollars worth of stock could face a debt-to-equity issue that might slow down the available capital for repurchasing their own shares. After all, we have seen year after year that buybacks have dominated the markets. One problem is that many companies were able to issue debt so cheaply under quantitative easing that it was dirt cheap to do so with the sole purpose of being able to fund buybacks. But as the economy has started running into at least the hint of headwinds, many companies are going to have to allocate billions of dollars to pay down debt over the next three to four years.

Before panicking out of all equities, it’s important to understand that the largest and highest rated companies in America likely can issue new debt ahead to effectively roll over their debt maturities into future years. Still, tax reform actually comes with some provisions that may lower a company’s ability to write off the interest payments if it goes above certain levels.

24/7 Wall St. has looked at some of the current largest corporations in America that have been large buyers of their own common shares and that also have billions of dollars of debt maturing from 2019 through 2021 (or 2022 in some cases). There are of course many other more leveraged companies, but a review of the largest companies that pay dividends and that have been buyers of their own stock seems worthwhile here for investors who might worry that corporations will have to become more selective on the use of their capital in the coming years. That’s particularly the case if the recession risks continue to increase beyond 2019. One more consideration is that investors are undoubtedly going to expect those dividend hikes ahead, as they have become used to seeing year in and year out.

Please note that the debt maturity figures come from Thomson Reuters, and these may entirely ignore credit lines and other short-term debt instruments that companies use for daily, quarterly and annual cash flow management. We also have included a relative market capitalization here on each company’s stock to keep the billions worth of debt in mind, and we have shown additional references for added color.

Due to a lag in debt reporting and balance sheet information not being universally available, some of this information from Thomson Reuters and other sources may not be reflective up to the exact date. These have been listed alphabetically, and this is not a ranked list nor intended to be a complete list of companies that may or may not have billions of debt maturities coming due with stock buybacks and dividends.

Apple Still King Kong

Apple Inc. (NASDAQ: AAPL) was still the largest company by market cap at roughly $820 billion. The company has over $103 billion in notes and bonds set for maturity in the years ahead, almost $28 billion of which is set to mature from 2019 through 2021. Apple is a major buyer of stock, and it seems unlikely, even with all the lower iPhone sales numbers seen by Wall Street, that its $200 billion (and then some) cash arsenal would be at risk. Apple’s current dividend yield is about 1.5%. Is Apple’s ecosystem worth more than the sum of its products?