McDonald’s is in the process of borrowing $10 billion and paying out a total of $30 billion to shareholders by the end of 2016 in dividends and share buybacks. Right after McDonald’s announced the increased debt, the ratings agencies cut McDonald’s credit rating to three notches above junk. That could mean higher borrowing costs for franchisees. Modern & Progressive .... and mortgaging our future.
Is this public information?
From MarketWatch: McDonald's Corp. corporate credit rating was downgraded one notch on Tuesday to BBB+ from A- at Standard & Poor's, which cited the fast food giant's plan to issue more debt to fund returns of cash to shareholders. The outlook is stable, S&P said. "The new rating leaves McDonald's debt at three notches above "junk" status. We would lower the rating if the company increases its return of capital to shareholders beyond current planned levels." So now it truly is "junk" food!
David Stockman was the Director of the Office of Management and Budget under President Reagan. He was on FOX Business last night saying that the idea of companies borrowing cheap money and giving it back to shareholders in dividends and share repurchases is going to turn out to be a disaster.
From Stockman's latest column:"Finally, we offer proof that the Fed is witlessly fueling another crash by referencing today’s announcement by Microsoft of another $40 billion stock buyback program. Apparently, the last $40 billion “investment” in its own vastly inflated stock has already been completed.The point here is that this exercise in Ponzi economics is being funded with cheap debt, compliments of Yellen and her ship of fools. In fact, Mr. Softie is sitting on a giant pile of cash, but has chosen to increase his balance sheet debt from $23 billion a decade ago to $54 billion today in order to what?That would be to help fund massive stock buybacks and dividend payments, of course. After all, even this dying once and former monopoly is not earning enough to make ends meet. To wit, during the last 10-years Microsoft earned net income of $178 billion, but paid out to shareholders even more—-$186 billion—-in stock buybacks and dividends.Needless to say, flooding Wall Street with this deluge of cash did wonders for its stock price. In fact, between June 2013 and the present, its market cap soared by $175 billion or 65%. And that was no inconsiderable feat because in no way, shape or form has Microsoft recovered its earnings mojo during the last 40 months."The entire column is here: http://davidstockmanscontracorner.com/just-plain-pathetic/.
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