Stock Buybacks Soar While Stocks Haven’t

Share buybacks seem to be one of those topics, along with the Fed, that many investors are determined to not understand. There’s nothing underhanded about them. The issue I have with them is that they can be swallowed up in normal volatility. While buybacks continue to rise, share prices haven’t kept up.

U.S. companies are buying back record amounts of stock this year, but their shares aren’t getting the boost they bargained for.

S&P 500 companies are on track to repurchase as much as $800 billion in stock this year, a record that would eclipse 2007’s buyback bonanza. Among the biggest buyers are companies like Oracle Corp. , Bank of America Corp. and JPMorgan Chase & Co.

But 57% of the more than 350 companies in the S&P 500 that bought back shares so far this year are trailing the index’s 3.2% increase. That is the highest percentage of companies to fall short of the benchmark’s gain since the onset of the financial crisis in 2008, according to a Wall Street Journal analysis of share buyback and performance data from FactSet.

Most companies are not very good market-timers. As a result, a lot of firms are paying too much for their own shares.

The S&P 500 Buyback index, which tracks the share performance of the 100 biggest stock repurchasers, has gained just 1.3% this year, well underperforming the S&P 500.

Posted by on July 9th, 2018 at 9:31 am


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