Technological advancement is coming fast and furious today, especially in the areas of energy and transportation. This is exciting but it will also require a lot of capital investment to make these transitions. That means less corporate profits and excess cash for non-productive rents like share buybacks and dividends. More reasons not to pay today’s extreme multiples for share ownership. See: Daimler spends big to compete with Tesla:
Management expects revenue and profit to increase again this year, thanks to ongoing growth in China and Europe, a recovery in other emerging markets and a fresh model lineup. Crucially, though, the German industrial giant isn’t counting on growth in the free cash flows that fund its big dividends.
The key reason: heavy investment in future technologies, namely electric powertrains, self-driving features, web-connected cars and the smartphone-enabled car-hailing or carpooling services pioneered by Uber. Last year Daimler’s investments, including spending on plants and equipment and research and development, totaled €13.5 billion ($14.56 billion)—8.8% of sales and 16% ahead of the 2015 level. This year spending is expected to rise a further 13% to €15.2 billion, and stay at that level in 2018.
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