What Happens If American Companies Stop Repatriating Overseas Cash?

American corporations continue to repatriate hundreds of billions of dollars held overseas, and the question of what happens if the repatriation ends is largely overlooked, according to one expert. 

The Expert

DataTrek Research co-founder Nick Colas discussed repatriation during a CNBC interview Wednesday.

The Thesis

American companies are setting records for the repatriation of foreign capital, with $646 billion in combined capital withdrawn from overseas markets for the 12-month period ending in June 2018, Colas told CNBC. This marks an increase from around $500 billion for the prior 12-month period ending June 2017.

Investors shouldn't necessarily be concerned with the momentum slowing in the near-term, as American companies can continue repatriating record cash for "quite a while," Colas said. Encouragingly, the total amount of repatriated cash plus dividends paid to investors among S&P 500 companies is still less than total earnings over the past 12 months, he said. 

Even if corporate earnings dip lower in 2019, companies should be able to continue to return capital to investors through stock buybacks and dividends, the DataTrek co-founder said. 

American companies will run out of cash to bring back home at some point. This could pose a problem, as investors are not buying American assets, as evidenced by a total of $70 billion in redemption from U.S. stocks and mutual funds in 2018, he said.

The offsetting factor of cash repatriation is a big reason why stocks are higher for the year, he said.  

Related Links:

Ten Years Gone: Investing Lessons From The Lehman Brothers Collapse

6 Investing Lessons From Apple's $1 Trillion Climb

Photo by Axelspace Corp. via Wikimedia.