Stock buybacks among S&P 500 companies mark a record streak

  • By Mark DeCambre,
  • MarketWatch
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The amount of shares repurchased by S&P 500 companies in the last three months of 2018 hit a record, marking the fourth consecutive quarterly all-time high and the longest such streak since S&P Dow Jones Indices began tracking repurchases two decades ago.

A preliminary reading of buybacks in the fourth quarter of 2018 shows that $222.98 billion worth of shares were bought back over the three-month period, headlined by Apple Inc. (AAPL) ($10.11 billion), Oracle Corp. (ORCL) (roughly $10 billion) and Wells Fargo & Co. (WFC) the data show.

The record amount of repurchases may also have been affected by the slide in global markets late in the year, with the S&P 500 (.SPX), the Dow Jones Industrial Average (.DJI), and the Nasdaq Composite Index (.IXIC) suffering in the last few months of 2018, culminating in the worst pre-Christmas trading session on record.

Already on a heady pace, share repurchases scored an added boost from the late-2017 corporate tax cuts signed into law by President Donald Trump.

"Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts," wrote Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

"Adding to the share reduction, and therefore the [earnings per share, or EPS] impact, was Q4's stock price decline, which permitted companies to buy even more shares for their dollars and reduce share count more efficiently," he said.

The data on equity repurchases comes as that use of corporate profits has come under increasing scrutiny on Washington.

In February, Sen. Bernie Sanders, the Vermont independent, and Senate Minority Leader Chuck Schumer, D-New York, wrote a New York Times op-ed, previewing a bill to limit corporate stock buybacks, unless companies meet certain preconditions, including investing in "workers and communities first" and paying all workers at least $15 an hour.

Republican Sen. Marco Rubio also in February unveiled his own plan to thwart stock buybacks.

The traditional criticism of share buybacks is that it is a way to enrich the wallets of CEOs and top-level executives because it can drive EPS gains of stock by reducing the outstanding float, while such practices take away from direct investments in the company and its workers.

However, market experts say limiting stock repurchases could remove a vital source of buying on Wall Street.

Joshua Bolten, chief executive of the Business Roundtable, and Ken Bertsch, executive director at the Council of Institutional Investors, argued in a New York Times op-ed earlier this month that curbing or limiting how U.S. companies deploy profits could hurt the economy.

"Not only do buybacks and dividends support a stronger and more dynamic economy, they also contribute to Americans' retirement security," the pair wrote.

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