Time for a graph ...
Historically, Disney rarely bought back its own stock. Like most companies, Disney actually issued stock in order to
raise capital to
invest and
grow the business.
1984 was the first year that Disney bought back an appreciable amount of stock as it fought off a hostile takeover attempt.
Immediately after this, Michael Eisner was brought onboard to fix corporate Disney. Eisner did a phenomenal job, growing company revenue by an incredible compound annual growth rate of
15.1% during his
21 years as CEO. Eisner did this by investing in capital projects, not by repurchasing company stock.
When Bob Iger took over, priorities changed. During Iger's first 9 years as CEO, Disney's revenue has grown by only
4.8% annually. Under Iger, the focus has shifted from growing the company to growing stock price.
This is best illustrated by comparing Disney stock repurchases to the company's total capital expenditures across all business segments:
View attachment 87936
Disney is not alone. In 2014,
S&P 500 companies spent over $550 billion on stock buybacks.
Cash rich companies used to invest in research & development, new technologies, and capital projects, creating millions of jobs in the process. Now companies spend those hundreds of billions buying back their own stock, effectively stuffing that cash in a mattress.
You want to know why Wall Street is booming while the middle class is struggling?
Look no further than stock buybacks.