Are Record Stock Buybacks Putting in a Stock Market Floor?

Investing

Published: December 21, 2015 4:35 pm

Last Updated: January 13, 2020 3:50 pm

With the Dow Jones Industrial Average (DJIA) and the S&P 500 Index fighting to stay in positive territory in 2015, and to keep the bull market streak going into a seventh straight year, it is important to consider what is driving the cart here. Investors love big dividends and share buybacks, but new data indicates that the stock market’s performance in 2015 is being bolstered or supported by the largest S&P 500 companies buying back their own stock.

Stock buybacks are one of the top methods that companies can use to return capital to shareholders. Then there is a flip side — that stock buybacks can manipulate the valuation and earnings metrics, or that they can juice a stock’s performance.

24/7 Wall St. has seen some research from Standard & Poor’s on record stock buyback activity continuing in 2015. It sure seems as though Corporate America may be bolstering their own stocks by acquiring more and more of their own shares. Yes, this may bolster earnings per share and other per-share valuation metrics. It could also be skewing the performance.

The total shareholder return for dividends and buybacks over the 12 months ending in September was at a record $934.8 billion. Technology/IT companies accounted for over 28% of all buybacks in that third-quarter analysis. The consumer staples and consumer discretionary sectors posted increases of 27.7% and 20.9%, respectively. The financial sector accounted for 17.1% of the buybacks, up 21.0%. Energy maintained its low level, slightly increasing 0.9% for the quarter

Apple Inc. (NASDAQ: AAPL), now a DJIA stock, was the leader, with over $13 billion used in the quarter (up 32.5% sequentially). Microsoft Corp. (NASDAQ: MSFT) continues to be aggressive in buying back stock, acquiring $4.8 billion in the third calendar quarter and $4.3 billion in shares in the second calendar quarter.