Key points from the report:
According to Bloomberg, from 2008 to Q3 2018, S&P 500 companies have spent $4.9T on buybacks versus only $3.4T on dividends.
Last year, partially fueled by lower corporate tax rates, S&P 500 constituents spent $770B purchasing their stock; this year it’s estimated they will spend close to $1T. This means that the S&P 500 will buy back more than 3% of its outstanding market capitalization in 2019. Given that S&P 500 earnings are only projected to grow +7% in 2019, shrinking the share base by 3% is significant.
Looking at a buyback proxy ETF (Invesco Buyback Achievers ETF-PKW, companies with at least 5% of shares bought back in trailing 12 months), we note that buybacks as a group outperformed the S&P 500 from March 2008 to March 2015. But, over the past four years, that trend reversed.
Lower interest rates likely played a large role in this difference. The outperformance period began as rates were lowered and ended when the Fed raised rates in 2015.
With the Fed currently on pause and talks of interest rate cuts picking up, the buyback group has begun to outperform again.
When looking at individual names that buy back shares, not all are equal. The table below shows that the best performers also have stronger growth (at the median level).
Interesting names that have both growth and 5%+ buybacks that performed well in the past year include NTAP, CHDN, UNP, AWI, CRMT, UBNT, ORLY, GLW, SBUX, CSCO, ATKR.
