Assuming aftertax returns on cash of 3 to 4 percent, and market-average returns of 10 percent on a stock index fund, the forgone opportunity cost for investors is 6 to 7 percent. That opportunity cost, writes BCG in Value Creators, has a negative impact on annual TSR of one to two percentage points, on average, which over 10 years is equivalent to the difference between top-quartile and average performance.
Many companies have, of course, turned to stock buybacks. Through the end of last year, companies in the SP 500 had bought back more than 100 billion in shares in each of the past five quarters, nearly double what they were paying out in dividends.
Theres some logic to that, says BCG, given that many companies are carrying cash and excess debt capacity equal to 20 to 30 percent of their market capitalization. Still, BCG argues that buying back stock doesnt deliver much in the way of long-term value, meaning that corporate executives must still find ways to differentiate their companies from how much personal loan do i qualify for competitors and demonstrate that they can deliver profitable, above-average growth.
Some, like Widman and his C-suite colleagues at Terex, seem to have mastered the challenge. Five to 10 years ago, we were a company still trying to prove ourselves, Widman says.
We had made several acquisitions, and investors were still asking themselves whether we could integrate and operate them effectively.
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