Stock buybacks hit record, but is that a good thing?

Companies aren't noted for their savvy when it comes to buying back shares

May 21, 2018 @ 2:09 pm

By John Waggoner

Flush with cash, companies are buying back stock and increasing dividends at a record pace, according to Standard & Poor's.

Companies in the S&P 500 stock index bought back $178 billion of their own shares in the first quarter. That's an all-time record, surpassing the previous record of $172 billion set in the third quarter of 2007, according to S&P. (These figures are for actual shares repurchased, rather than planned repurchases, which are sometimes pure fantasy).

Dividends totaled $109.2 billion in the first quarter, up from $100.9 billion in the year-ago period.

Combined buybacks and dividends for the 12 months ended March 31 could exceed $1 trillion for the first time, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indexes. That's more likely to happen in the second quarter, Mr. Silverblatt said.

Tech companies have been the buyback leaders, with Apple at the head of the pack. The juggernaut bought back $22.8 billion of its own shares in the first quarter, a record amount for any company.

All things being equal, a company that reduces the number of shares available to buy should see its stock rise in price. And companies have lots of cash to keep buying back shares and doling out dividends: A record $1.6 trillion sat on the books of nonfinancial companies at the end of last year, although the current tally is about 1.7% lower than the fourth quarter of 2017.

Still, the good news on buybacks comes with several caveats.

The first is that buybacks are not necessarily a good thing. Some buyback activity is sparked because companies need to purchase their own stock to give to executives, which isn't a terribly productive use of capital.

And some people, notably Warren Buffett, superstar investor and CEO of Berkshire Hathaway, aren't convinced that buybacks are undertaken for the noble purpose of increasing shareholder value.

"Repurchases are all the rage, but are all too often made for an unstated and, in our view, an ignoble reason: to pump or support the stock price," Mr. Buffett wrote in a 1999 shareholder letter.

Moreover, companies aren't necessarily savvy buyers of their own stock. Those who recall their stock market history will note that the last peak in stock buybacks coincided with the start of the 2007-2009 bear market, the worst since the Great Depression. In March 2009, when stocks were cheaper than a pair of socks at the dollar store, companies bought back just $30 billion of their own stock. Why the surge now?

"Maybe because the expansion is getting long in the tooth, more than twice the average since 1900, andbusinesses are getting concerned about investing in such a long-lived recovery," said Sam Stovall, chief investment strategist of U.S. equity strategies at CFRA. "They just have a lot of cash, and they're acting like males — they don't want to commit."

To be fair, capital spending in the first quarter totaled $158.8 billion, which was a first-quarter record, but down 6.5% from the total in the fourth quarter. And companies could well get another wave of new cash, thanks to corporate tax reform.

"They could still be hoping that infrastructure spending will be encouraged by the Trump administration, and are waiting to see what kind of carrots are dangled in front of them to make them spend," Mr. Stovall said.


What do you think?

View comments

Most watched


Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.


Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

4 strategies for Roth conversions

There's never been a better time to do a Roth conversion, and here are several ways to go about it.

Cetera latest to be hit with data breach of personal information

Company is offering clients complimentary, two-year membership to an identity theft protection and credit monitoring service.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print