Worried About Stocks? $1 Trillion in Buybacks Will Help
Record repurchases will be an important buffer to total returns if share price gains disappoint in the coming years.
Happy buyback December.
Photographer: Michael Nagle/Bloomberg
December is a big month for stock buybacks, and by month’s end, companies are expected to spend more money repurchasing shares this year than ever before. Not everyone is happy about it. Buybacks have been called everything from market manipulation and wage killers to a tax loophole and an executive compensation scheme. With US stocks widely expected to deliver lackluster gains in the years ahead, investors should call buybacks indispensable.
That’s because share repurchases have become a key component of total stock returns, although you might not know it based on recent buyback yields. Yes, companies in the S&P 500 Index spent $790 billion last year repurchasing shares, up from closer to $170 billion in 2000, based on the longest data compiled by Bloomberg. Goldman Sachs Group Inc. estimated in March that buybacks this year would be just short of $1 trillion and cross that milestone in 2025. But the S&P 500 is also more valuable than it was in 2000, and as a percentage of market value, buybacks are only modestly higher than they were at the time.