Buybacks are back: Corporate America is on a spending spree

Share repurchases in the first quarter are up sharply, led by Meta and Apple.

  • By Charley Grant,
  • The Wall Street Journal
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U.S. companies are feeling good about their prospects and spending like they mean it.

The first-quarter earnings season is turning out better than many Wall Street forecasters had expected. At the same time, companies are stepping up repurchases of their own shares, which is giving a resurgent stock market an extra boost.

S&P 500 () companies that have reported first-quarter results as of Monday have disclosed buying back $181.2 billion of their shares during the period, according to data compiled by Birinyi Associates. That is up 16% from the year-ago quarter. The pace of purchases has been brisker than usual for nine straight weeks, BofA Securities said Wednesday in a research note.

Big tech companies are leading the charge: Facebook’s parent, Meta Platforms (), repurchased $14.5 billion of its shares in the first quarter, up about $5 billion from a year earlier. Apple (), Netflix () and Nvidia () are among the other companies that have stepped up buybacks, as well as Wells Fargo (), the construction equipment maker Caterpillar () and the tobacco manufacturer Altria Group ().

The spending is expected to continue. Apple shares had their best day since 2022 on Friday, after the tech company said it plans to buy back $110 billion of its own stock. In all, 443 companies have announced a buyback plan this year, up from 378 a year earlier, data from Birinyi shows.

Investors are taking the increase in buybacks as a sign of rising confidence among executives, despite persistent fears that the economy could weaken or that interest rates will stay high for longer than hoped.

“Corporate America thinks their fundamentals are fine. They’re not worried about rates, not worried about their balance sheets,” said Jeffrey Yale Rubin, president of Birinyi Associates. “If people that know the companies the closest are comfortable buying their stock, why wouldn’t I be?”

The S&P 500 has advanced 9.3% this year. That includes a 3.5% rally so far in May, which marks the best start to the month since 2009.

The jump in buybacks so far this year comes after a sharp pullback in 2023, when repurchases by S&P 500 companies tumbled 14%. That was the second-largest annual decline since the global financial crisis in 2008, and came in the midst of fears that high interest rates could tip the economy into recession. Some companies raced to buy back stock in 2022, before a new 1% buyback tax went into effect last year.

Instead, the economy has remained strong, defying skeptics. Earnings growth has resumed, and Wall Street analysts expect growth to pick up steam through the rest of the year. And while interest rates remain at their highest levels in more than two decades, the extra yield over Treasurys that investors demand to lend to bigger companies is near multidecade lows.

Analysts at Goldman Sachs project that total S&P 500 repurchases will reach $925 billion this year and $1.075 trillion in 2025, which would mark annual growth rates of 13% and 16%, respectively.

Buybacks are popular among investors because they lower the number of shares outstanding, boosting a company’s per-share earnings. Meta stock surged 23%, its best day in nearly a decade, after it unveiled a $50 billion buyback plan in February.

Share repurchases are a relatively flexible use of cash. They can typically take place at a company’s discretion, without a fixed deadline. Other uses of cash, such as investing in a new factory or paying out a regular dividend, are much harder to stop if the economy sours. Investors usually owe taxes on dividend payments they receive.

Large repurchases can make stocks more attractive, but some investors warn they aren’t a reason for buying on their own. Buybacks can signal a slowing business, as fast-growing companies often invest their cash back into expanding their operations.

Buybacks “should be one element of an overarching strategy to boost shareholder return,” said Tim Thomas, director of research and wealth manager at Badgley Phelps. Large repurchases won’t lift stocks in companies that aren’t increasing revenue or finding other useful ways to invest their cash, he said.

Major tech companies are among the largest buyers of their own stock, but they are also spending big in other areas. Meta and Google’s parent, Alphabet (), both initiated a dividend for the first time this year, meaning five of the so-called Magnificent Seven now pay one. That is on top of the billions of dollars many big tech companies say they plan to spend every quarter to develop artificial-intelligence capabilities.

Taken together, it is why the spending decisions are reassuring, said Sarah Kanwal, managing director of equities at Crestwood Advisors. “They’re not pulling back on their investments.”

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