GOLDMAN SACHS: America's largest companies will spend 2.7 trillion of cash next year. Here are the 5 ways they'll use it.

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Companies within the S&P 500 are expected to grow cash spending by 2 to 2.7 trillion in 2020, according to a new analysis from Goldman Sachs.

That figure stands in sharp contrast to the expected 6 contraction in spending in 2019 as share buybacks continue to fall and cash acquisitions slow down.

Here's are the five ways Goldman expects America's largest corporations to spend their cash in 2020, in increasing order of size.

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America's largest companies are expected to spend about 2.7 trillion of cash next year.

That's according to a new analysis from Goldman Sachs, which forecasts that cash spending will increase about 2 in 2020 amid a rise in growth investments.

The forecasted increase in 2020 stands in sharp contrast to the expected 6 decline in spending by S&P 500 companies in 2019. The contraction came primarily from a 20 slump in cash acquisition spending and a 15 plunge in stock buybacks, the bank said.

At a high level, Goldman expects companies in 2020 to spend about 55 of their cash on growth while returning 45 to shareholders.

"We estimate cash return to shareholders will fall by 1 to 1.2 trillion as a 5 decline in share repurchases more than offsets 5 growth in aggregate dividends," Goldman wrote in a note to clients last week. "Investment for growth will rise by 4 to 1.5 trillion."

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Here are the five ways Goldman expects America's largest companies to spend 2.7 trillion of cash during 2020, in increasing order of size: 5. Cash mergers & acquisitions

Reuters

Estimated total: 365 billion

Predicted change since last year: 6

"S&P 500 cash M&A spending will increase by 6 to 365 billion in 2020, supported by a 6 climb in operating EPS, ample cash balances, and credit markets that remain accessible to finance transactions," the bank wrote.

Goldman added: "Low CEO confidence has historically been associated with greater appetite for acquisitions vs. investment for organic growth."

4. Research & development

AP

Estimated total: 380 billion

Predicted change since last year: 6

"Spending on R&D is highly correlated with capex spending, but is less volatile," the firm wrote in a note to clients.

Goldman continued: "R&D has only declined on a year year basis during three years since 1990 2002, 2003, and 2009 . This experience suggests R&D spending is likely to continue to grow if the US economy avoids recession, as our economists expect."

3. Dividends

Reuters

Estimated total: 535

Predicted change since last year: 5

"S&P 500 dividends will grow by 5 to 535 billion in 2020, broadly in line with the 6 growth we expect in adjusted earnings," Goldman said. "The payout ratio will remain mostly unchanged at 35 during 2020, in line with the 20-year average."

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