March 26, 2014 / 3:56 PM / 5 years ago

BlackRock CEO to US companies: Don't overdo divs, buybacks

Chairman and Chief Executive of BlackRock Laurence Fink speaks during a session at the World Economic Forum (WEF) in Davos January 25, 2014. REUTERS/Ruben Sprich

(Reuters) - BlackRock Inc (BLK.N) Chief Executive Officer Laurence Fink has warned top U.S. companies not to emphasize dividends or share buybacks at the expense of future growth.

Many top corporations have faced pressure from Wall Street analysts, activist investors and others to increase dividends, buy back shares or take other steps to return capital to investors, sooner rather than later.

Fink, in a March 21 letter to executives of companies in the S&P 500, acknowledged the pressure for near-term performance but reminded companies to focus on the longer term. With $4.3 trillion under management at December 31, BlackRock’s holdings give it significant influence over the boards of top corporations.

“It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” he wrote in the letter. BlackRock provided a copy of the letter to Reuters.

“Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks,” he added.

“We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns,” Fink wrote.

Michelle Edkins, who heads BlackRock’s corporate governance efforts, said Fink sent the letter to counter what she called “a lot of short-term noise in the market” from activist investors, Wall Street analysts and the media.

Reporting by Ross Kerber; Editing by Miral Fahmy and Jeffrey Benkoe

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