Calendar Year S&P 500 Stock BuybacksLearn more about this firm
Calendar Year S&P 500 Stock Buybacks
Stock buybacks buoy equity markets. Low rates buoy buybacks.
Data from Bloomberg indicate that the $759 billion that S&P 500 companies spent on stock buybacks in 2018 was the largest dollar amount this century. In early 2019, stock buybacks continue to make headlines, with more than 35 companies having already made new authorizations for nearly $140 billion in buybacks.
A comparison of buybacks over the last eight years to buybacks during the eight years prior to the crisis offers some interesting insights.
In the eight years prior to the financial crisis, not only did fewer companies execute buybacks, but the average buyback was also smaller in size, even on a buyback yield basis (buyback amount/market cap).
Perhaps the most interesting aspect is the difference between the interest rates during those years. The average 5-yr Treasury yield in the earlier period was 4.2% and just 1.6% in the later period.
To the extent that companies are financing their buybacks with debt, today’s lower rates are likely to continue to fuel the current buyback trend. In the meantime, investors may do well to consider what will replace buybacks’ buoying effect on equity markets when rates eventually move higher.
Unless otherwise noted, data is sourced from Bloomberg.
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