Some long-term valuation models are projecting negative overall returns for the S&P 500 over the next decade. Analysts are expecting rising interest rates to weigh on earnings growth, so companies may start turning to more aggressive share buybacks to boost EPS.
Deep Pockets
In the third quarter of 2021, Apple Inc. led all S&P 500 companies with $20.4 billion in buybacks. Alphabet Inc. was a distant second with $15 billion in buybacks, followed by Meta Platforms Inc. with $12.6 billion.Over the last decade, no company has come close to Apple in the buyback department. Apple has bought back $487.6 billion in stock since 2012. Microsoft Corporation is a very distant second with $147.1 billion in buybacks, followed by JPMorgan Chase & Co. with $146.2 billion.
Why Buybacks Matter
It should come as no surprise to investors that all three of the stocks that have been most aggressive in buying back shares over the last 10 years have outperformed the SPDR S&P 500 ETF total return by a wide margin in that period.The SPY fund has a 10-year total return of 285.6 percent compared to 420.4 percent for JPMorgan, 962.7 percent for Apple and 1,030 percent for Microsoft.
Share buybacks don’t boost a company’s net income, but they do boost a company’s earnings per share and lower its price-to-earnings multiple by reducing a company’s total number of outstanding shares. Buybacks also generate internal demand for shares of stock and reduce a stock’s total float, both of which can pressure share prices higher.
Benzinga
Buybacks are often also an incorrect indication of a stock with a healthy business and extra cash flow to spend—the exact type of company that makes for a solid long-term investment.
S&P 500 companies collectively repurchased a record $234.6 billion in stock in the third quarter of 2021, up 18 percent from 2020 levels.
Benzinga’s Take
One way for investors to gain diversified exposure to buyback stocks is the Invesco Buyback Achievers ETF, which invests in stocks that have repurchased at least 5 percent of their outstanding shares over the past 12 months. Unfortunately, the PKW ETF has underperformed the SPY ETF over the past five years.By Wayne Duggan
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