And — oh, here’s an interesting cash windfall — #Texas #Instruments raised about $2.5 billion by selling stock over these five years.

Wait, what?

Selling stock, not buying stock?

Selling stock to whom?

Hold that thought …

Put it all together and I figure the company generated about $25 billion in truly free cash flow over this 5-year span.

What is management going to spend this treasure chest on?

Well, surely you’re going to spend a healthy amount on #capital #expenditures, right?

I mean, you took a $5.2 billion depreciation and amortization charge over this time span,
and we all know that semiconductor manufacturers need to stay on that bleeding edge of technological innovation to keep earnings growing in the future, right?

Nope.

Texas Instruments spent $3.3 billion on fixed assets from 2014 through 2018, one-third of that total in 2018.

Some significant proportion of that was maintenance capex as opposed to growth capex.

Well, if you didn’t spend your money on property, plant and equipment, then surely you spent a healthy sum in #MandA, right?

Nope. $1.6 billion over five years. Tuck-in stuff.

I guess you were paying down debt, then. #Deleveraging up a storm, right?

Nope. Paid down debt by $500 million a year in 2014, 2015 and 2016, but increased debt by $500 million in 2017 and $1 billion in 2018.

So it’s #dividends, right? This is where all the cash went?

Now we’re getting there:
️$9.1 billion in dividends over five years. A healthy direct return of capital to shareholders.

But it’s just a warm-up to the main event:

$15.4 billion in #buying #back #stock from 2014 through 2018.

️Between stock buybacks and dividends, that’s $24.5 billion in cash “returned to shareholders”,

essentially 100% of the free cash flow generated by the company over the past five years.️

Now here’s the kicker.

What sort of share-count reduction would you think that this $15.4 billion in buybacks gets you?

I mean, that is the logic here, that investing $15.4 billion in the company’s own stock is the best possible capital allocation that the company can make.

I would have guessed that surely
$15.4 billion would retire anywhere from 20% to 25% of the shares outstanding over this time frame,
with the stock price ranging from $40 to $100.

In truth, Texas Instruments retired only 10% of its outstanding diluted shares with its $15.4 billion investment,
going from 1.1 billion shares to 990 million shares.

But wait, there’s more.

From 2014 through 2018, Texas Instruments bought back 228.6 million shares for $15.4 billion.

That works out to an average purchase price of $67.37.

Over that same span, Texas Instruments sold 90.8 million shares to management and board members as they exercised options and restricted stock grants, for a total of $2.5 billion.

That works out to an average sale price of $27.51.

The difference in average purchase price and average sale price, multiplied by the number of shares so affected, is $3.6 billion.

In other words, 40% of Texas Instrument’s stock buybacks over this five-year period
were used to sterilize stock issuance to senior management and the board of directors, who received $3.6 billion in direct value from these buybacks.

But wait, there’s more …

As of Dec. 31, 2018 there were still 40 million shares outstanding in the form of options and restricted stock grants to management and directors,
at an average weighted exercise price of $55.

At today’s stock price, that means an additional $2.6 billion in stock-based compensation has already been awarded.

Well golly, these surely must have been #amazing #managers and directors to warrant that sort of stock-based compensation in addition to their cash compensation.

This is the performance of Texas Instruments (in white) and the iShares PHLX Semiconductor ETF (in gold) over the same five years.

Texas Instruments is the fifth-largest position in that ETF and that underlying index, with a 7.1% weight.

For the past five years, Texas Instruments has been nothing more than a tracking stock for a passive semiconductor index.

And for this privilege, shareholders have rewarded management and directors with
$6.2 billion in stock, plus a couple of billion in cash compensation.

That’s why it’s never been a better time in the history of the world to be a senior manager of a publicly traded company.

It’s a crying shame, because here’s the thing … the total return on owning Texas Instruments is, in fact, 15% higher than the ETF over this five-year span.

Because of the dividend.

Do you want to run your company for cash generation?

Do you want to return that cash to shareholders?

Great!

Use a special dividend, not buybacks.

There, fixed it for you.

#financialization #Share #buybacks

https://www.epsilontheory.com/yeah-its-still-water/