Investing

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

Jon C. Ogg

Published: November 27, 2018 6:45 am

Last Updated: January 11, 2020 2:29 pm

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?

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Cisco Remains Active

Cisco Systems Inc. (NASDAQ: CSCO) has been among the top tech stock buyback names for years. Its market cap is $205 billion, and its dividend has been raised and raised, with a current yield of about 2.8%. Cisco counts about $61.5 billion in total liabilities, with about $25.75 billion being notes and bonds. Still, it has more than $16 billion coming due from 2019 through 2021, and $7.25 billion of that was listed as coming due in 2019. Cisco is off to a strong 2019 but still has China risks.

Can Exxon Mobil Escape Lower Oil Prices Again?

Exxon Mobil Corp. (NYSE: XOM) is the largest energy company in America and is a top global energy player. It has a $328 billion market cap and a dividend yield of about 4.3%. With $19.4 billion in all long-term bonds, this number seems small considering its other liabilities all adding up to almost $158 billion. Exxon has a manageable $8 billion or so in debt maturities coming due from 2019 through 2021. Credit Suisse prefers rival Chevron over Exxon.

Will GE Even Be GE in the Future?

General Electric Co. (NYSE: GE) remains troubled, and the company even slashed its dividend down to one cent per quarter, and it is effectively no longer able to repurchase shares as its priority under new CEO Larry Culp is to help get its leverage down. This stock keeps falling to lows not seen since the financial crisis, but its debt prices have reportedly starting firming back up after a serious drop in its bond prices. The equity market cap was down to about $65 billion, and no investor is evaluating GE’s dividend yield in their head at this time. Of a total of over $75 billion in bonds and notes due in the future years, Thomson Reuters listed $4.1 billion due in 2018, another $4.5 billion due in 2019, $7.2 billion in 2020 and over $4.6 billion due in 2021. Almost $7 billion was additionally due in 2022 on last look.

Intel Still Chugging Along

Intel Corp. (NASDAQ: INTC) is still the top dog when it comes to processors, and it has a $215 billion market cap and 2.5% dividend yield to prove it. Intel also has been a large buyer of its own stock, and it has been an acquirer of other companies in recent years. Its total liabilities of more than $56 billion include more than $26 billion in listed bond and note maturities from now through 2047. Less than $200 million in debt is slated to mature in 2019, but its debt zenith years of 2020 through 2022 will have about $10.5 billion coming due. Did Intel deserve better credit around earnings than the stock market sell-off allowed?

Johnson & Johnson Keeps Hiking

Johnson & Johnson (NYSE: JNJ) is huge, with its $379 billion market cap, and it’s a leader in medicine, medical products and consumer products. Its 2.5% yield may not seem so grand compared to others, but it’s in the list of companies raising their dividends decade after decade. With about $31 billion in total debt maturities over time, only about $5.5 billion is coming due from 2019 through 2021.

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JPMorgan Is the Current King of Banks

JPMorgan Chase & Co. (NYSE: JPM) is currently the largest bank by market cap, with its $356 billion valuation. It also has a 3% dividend yield, and CEO Jamie Dimon would prefer to keep raising that yield as long as the regulators will allow. With a total of roughly $240 billion in total debt maturities on the books, JPMorgan has some $73 billion maturing from 2018 through 2021, and that is listed as follows: $132 billion in 2019, $23.9 billion in 2020 and roughly $46 billion in 2021. Warren Buffett and Berkshire Hathaway became a big buyer of JPMorgan shares, but major bank stocks were already reflecting their own bear markets in late October.

New Microsoft More Loved Than the Old Microsoft

Microsoft Corp. (NASDAQ: MSFT) was back at being the world’s second largest company (or is it first again?), with an $800 billion market cap. The world’s leading software seller and cloud-management giant has nearly $75 billion in notes and bonds due, and it has $16 billion due from 2018 through 2021. Microsoft’s dividend yield is roughly 1.8%.

Is Oracle Still Buying Back Too Much Stock?

Oracle Corp. (NYSE: ORCL) is a company that actually may have gone overboard on how much stock it wants to buy back. With about $90 billion in total liabilities, it has an equity market capitalization of $184 billion. With more than $58 billion listed in debt maturities through 2055, more than $14.5 billion will come due between 2019 and the end of 2021. Oracle has a 1.5% dividend yield.

Pfizer, Patent Cliffs, Dividends and Buybacks

Pfizer Inc. (NYSE: PFE) has a market cap of $253 billion, and the drug giant has a dividend yield above 3.1%. While it has $96 billion in total liabilities, about $32.7 billion is listed as debt maturities coming due in the future. About $10.5 billion in debt comes due from 2019 through 2021. Will yet another restructuring get in the way of the shareholder returns program?

Procter & Gamble Keeps Hiking

Procter & Gamble Co. (NYSE: PG) is the world’s largest of all consumer products giants. With a $228 billion market cap, it also has dividend yield is 3.1%. With a total of more than $29 billion in total bond and note maturities ahead, roughly $11 billion of that will come due from 2019 through 2021. Itis among the few companies with over 50 consecutive years of dividend hikes.

UnitedHealth, Healthier After Health Care Reform

UnitedHealth Group Inc. (NYSE: UNH) is the most valuable health insurer, with a $250 billion market cap, and it comes with a dividend of only 1.3%. With about $97 billion in total listed liabilities, UnitedHealth’s debt maturity total seen at $32.7 billion. While only $8 billion of that is slated to come due in the 2019 through 2021 timeframe, the annual debt zenith is over $3 billion due in each year 2020, 2021 and 2022.

Verizon Meets the 5G Future

Verizon Communications Inc. (NYSE: VZ) has almost $106 billion in total debt maturities from now through 2055, but its total liabilities are listed as almost $210 billion. Only $7.5 billion of bonds and notes are set to mature between 2019 and 2021, but another $8.9 billion outstanding is set to mature in 2022 and that is the largest debt maturity year of every one represented by Thomson Reuters. Its market capitalization is $245 billion for the value of its common shares, and the rising annual dividend year after year currently has a yield of 4%. A recent dividend hike is expected to be continued.

Is Walmart the Only Amazon-Proof Retailer?

Walmart Inc. (NYSE: WMT) is the world’s top retailer, with a $275 billion market cap for the value of its stock. While it has total liabilities of more than $147 billion, its total schedule of debt securities coming due is just over $47 billion, with about $10.2 maturing from 2019 through 2021. Walmart continues to raise dividends and continues to buy back stock. It has seen surging online sales, and it is likely to be one of the few defensive stocks for investors to hide out in during 2019 if they are scared.

Note that many other companies have high levels of debt coming due after 2018 and have been both big buyers of their own shares and companies hiking dividends. Other companies face the same issue and may have to lower their dividends or seriously limit how much more can be paid out to their shareholders ahead. If interest rates rise too much after 2018, and if actual recession risks become more of a reality, then the market will weigh high debt-to-equity ratios again if too much debt is due within a one-year to three-year rolling timeline.