Wednesday, April 14, 2021

Stock Buyback Rate Continues To Increase

S&P Dow Jones Indices recently reported stock buyback results for the fourth quarter of 2020 noting a 28.2% increase in the quarter versus the third quarter increase of 14.8%. This increase in buyback activity for S&P 500 companies follows a steep contraction in Q2 2020, i.e., $88.7 billion versus $198.72 billion in Q1 2020. Aggregate dividends paid in Q4 2020 increased to $118.84 billion versus $115.54 billion in the third quarter last year. Buybacks totaled $130.5 billion versus Q3 buybacks of $101.8 billion. This level of buybacks pushes the quarterly back amount above the dividends paid in the quarter as seen with the red and purple lines in the below chart.

Some fourth quarter highlights from S&P's report
  • 244 companies reported buybacks of at least $5 million for the quarter, up from 190 in Q3 2020 and down from 320 in Q4 2019.
  • Buybacks remained top heavy, with the top 20 issues accounting for 66.3% of Q4 2020 buybacks, down from 77.4% in Q3 2020, 87.2% in Q2 2020, but still up from the historical pre-COVID average of 44.5%.
  • Full year 2020 buybacks were $519.7 billion, a 28.7% decrease from 2019’s 728.7 billion, and 35.6% less than the record $806.4 billion in 2018.
  • Buybacks are expected to significantly increase in 2021, as big banks, via Fed approval for Q1 2021, have returned to the buyback market and more companies continue to look to negate stock options.
Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, also notes, "More companies ventured back into the buyback market as they sought shares to cover employee options being exercised and prevent dilution. That, combined with buying from cash flow strong companies, resulted in a buyback rebound in the fourth quarter." This increase in the level of buybacks and a resumption of dividend growth is a sign companies are seeing improving cash flow near term, this on the back of an improving economy

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