US companies have announced record levels of share buybacks as confidence recovers after a lull at the height of the coronavirus pandemic.
Businesses have authorised more than $870bn of repurchases so far this year, Goldman Sachs data show, almost three times more than in the same period in 2020 and $50bn ahead of the record set in the first nine months of 2018.
The rebound suggests that corporate America is now flush with cash and looking for ways to use it, after cutting payouts last year to hoard funds and protect against the risk of a more severe downturn.
Growing confidence has also been reflected in dividend payments, which for Wall Street’s S&P 500 share index hit a record high in the third quarter and are on track to rise further in the last three months of the year.
“Record earnings, sales and margins have permitted companies to return to the business of returning shareholder wealth,” according to Howard Silverblatt of S&P Global Indices.
Share buybacks can appeal to management teams for a number of reasons. The schemes can directly lift companies’ share prices by reducing the number of shares in circulation and increasing demand.
Cutting the number of shares in issue can also provide an indirect boost to stock prices by improving earnings per share — a closely watched measure of profitability.
However, Silverblatt also noted last month that the recent repurchases had had relatively little impact on earnings because share prices were so high.
September marked the worst month for the S&P 500 since March 2020. But the index is still up more than 17 per cent since the start of the year. Companies’ willingness to authorise further repurchases even as stock prices are close to record highs could signal a belief that recent dips will prove temporary.
That said, such optimism is not necessarily shared equally. The buyback totals have been disproportionately driven by a small number of companies. Just 20 companies accounted for 56 per cent of spending on share buybacks in the second quarter, with Apple, Alphabet and Facebook leading the way.