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Buyback ETFs Could Enjoy Record Year of Company Share Repurchases

This article was originally published on ETFTrends.com.

Company stock repurchases just hit its fourth consecutive quarterly record, the longest streak in at least two decades. Investors can also look to exchange traded funds that focus on the buyback strategy if the pace of repurchases continues.

The S&P Dow Jones Indices announced preliminary Q4 2018 S&P 500 stock buyback numbers of $223 billion, which marked the fourth consecutive quarterly record, the longest streak in the 20 years SPDJI has been tracking buybacks. The previous record of $203.8 billion was set during Q3 2018 and the Q4 number was a 62.6% jump from the $137.0 billion reported for Q4 2017.

For all of 2018, buybacks set a record $806.4 billion, or up 55.3% year-over-year and up 36.9% from the record $589.1 billion set back in 2007.

“Buybacks broadened out in Q4, as the top 20 issues accounted for 44.4% of all S&P 500 buybacks, near the recent historical average of 43.7%, down from Q3’s 54.3%, Q2’s 49.7% and Q1’s 49.5%. For the year, however, the top 20 accounted for 42.2% of the buybacks, substantially up from 2017’s 32.3%," Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, said in a note.

The record buybacks came in while stock prices declining an average 5.3% over Q4 2018, which only further increased the number of shares that companies could repurchase for the same amount of capital. Consequently, the percentage of companies that substantially cut share counts of at least 4% year-over-year surged to 18.8%, compared to the prior quarter’s 17.7% and Q4 2017’s 15.1%, bolstering earnings-per-share results.

“Buybacks were again favored over dividends in both the rate of growth and aggregate dollars spent,” Silverblatt added. “Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts. Adding to the share reduction, and therefore the 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.”

Company  Ticker Sector Q4 2018 2018 2017 5-Year 10-Year Indicated
Buybacks Buybacks Buybacks Buybacks Buybacks Dividend
$ Million $ Million $ Million $ Million $ Million $ Million
Apple AAPL Information Technology $10,114 $74,246 $34,427 $228,961 $260,449 $13,769
Oracle ORCL Information Technology $9,995 $29,306 $3,975 $58,680 $88,482 $3,445
Wells Fargo WFC Financials $7,308 $20,964 $10,301 $57,986 $71,610 $8,189
Microsoft MSFT Information Technology $6,413 $16,300 $8,405 $66,093 $118,506 $14,117
Merck MRK Health Care $5,933 $9,091 $4,014 $28,428 $43,774 $5,679
JPMorgan JPM Financials $5,928 $19,983 $15,410 $54,851 $73,155 $10,478
Bank of America BAC Financials $5,231 $20,094 $12,814 $42,069 $45,307 $5,795
Cisco Systems CSCO Information Technology $5,182 $22,936 $7,771 $46,276 $81,820 $6,163
Starbucks SBUX Consumer Discretionary $5,170 $10,709 $3,306 $18,828 $21,114 $1,791
Pfizer PFE Health Care $5,030 $12,198 $5,000 $32,035 $64,476 $7,995
Home Depot HD Consumer Discretionary $4,445 $9,963 $8,000 $38,843 $57,619 $6,145
Citigroup C Financials $4,206 $14,533 $14,946 $46,705 $50,090 $4,233
Facebook FB Communication Services $4,045 $16,087 $5,222 $21,388 $25,140 $0
Johnson & Johnson JNJ Health Care $3,808 $5,868 $6,358 $33,697 $62,014 $9,587
Broadcom AVGO Information Technology $3,513 $10,771 $0 $10,771 $11,090 $4,199
Walmart WMT Consumer Staples $3,249 $7,410 $8,296 $29,131 $68,413 $6,159
Alphabet GOOG/L Communication Services $2,650 $9,075 $4,846 $19,394 $20,312 $0
Visa V Information Technology $2,494 $7,914 $6,880 $30,050 $56,589 $1,750
Amgen AMGN Health Care $2,250 $17,920 $3,351 $26,902 $49,944 $3,609
Internat'l Bus Machines IBM Information Technology $2,073 $4,614 $4,533 $28,206 $98,936 $5,588
Top 20   $99,037 $339,982 $167,855 $919,294 $1,368,840 $118,690
S&P 500 $222,980 $806,408 $519,397 $2,987,621 $4,703,661 $490,570
Top 20 % of S&P 500 44.42% 42.16% 32.32% 30.77% 29.10% 24.19%

Gross values are not adjusted for float

As more companies look to add value through share repurchases, ETF investors can also capitalize on the potential opportunity through buyback-themed ETF strategies.

For instance, ETF investors who believe in a rise in share repurchases can look to ETFs that specifically target companies that implement buyback schemes, including the  Invesco Buyback Achievers ETF (PKW) , the SPDR S&P 500 Buyback ETF (SPYB) and iShares U.S. Dividend and Buyback ETF (Cboe:DIVB) .

PKW includes a broader selection of U.S. companies that have effected a net reduction in shares outstanding by 5% or more in the trailing 12 months. SPYB focuses on S&P 500 companies with the highest buyback ratio in the past 12 months. DIVB is comprised of U.S. stocks with a history of dividend payments and or share buybacks where holdings include those with the largest dividend and buyback programs in the market measured by dollar value.

S&P Dow Jones Indices
S&P 500, $ U.S. BILLIONS (preliminary in bold)
PERIOD MARKET OPERATING AS REPORTED DIVIDEND &
VALUE EARNINGS EARNINGS DIVIDENDS BUYBACKS DIVIDEND BUYBACK BUYBACK
$ BILLIONS $ BILLIONS $ BILLIONS $ BILLIONS $ BILLIONS YIELD YIELD YIELD
2018 Prelim. $21,033.30 $1,281.83 $1,116.83 $456.31 $806.41 2.17% 3.83% 6.00%
2017 $22,821.24 $1,066.00 $940.86 $419.77 $519.40 1.84% 2.28% 4.12%
2016 $19,267.93 $919.85 $818.55 $397.21 $536.38 2.06% 2.78% 4.85%
2015 $17,899.56 $885.38 $762.74 $382.32 $572.16 2.14% 3.20% 5.33%
2014 $18,245.16 $1,004.22 $909.09 $350.43 $553.28 1.92% 3.03% 4.95%
5YR Total (mkt avg) $19,853.44 $5,157.28 $4,548.07 $2,006.05 $2,987.62 10.10% 15.05% 25.15%
10YR Total (mkt avg) $16,124.68 $9,119.73 $8,158.26 $3,240.14 $4,703.66 20.09% 29.17% 49.26%
12/31/2018 Prelim. $21,033 $293.99 $240.31 $119.81 $222.98 2.17% 3.83% 6.00%
9/30/2018 $24,579 $349.04 $306.70 $115.72 $203.76 1.81% 2.93% 4.75%
6/30/2018 $23,036 $327.53 $288.55 $111.60 $190.62 1.89% 2.80% 4.69%
3/29/2018 $22,496 $311.26 $281.28 $109.18 $189.05 1.90% 2.56% 4.46%
12/29/2017 $22,821 $288.93 $230.12 $109.46 $136.97 1.84% 2.28% 4.12%
9/29/2017 $21,579 $268.35 $243.68 $105.45 $129.17 1.92% 2.40% 4.32%
6/30/2017 $20,762 $261.39 $231.40 $104.01 $120.11 1.96% 2.41% 4.37%
3/31/2017 $20,276 $247.32 $235.65 $100.86 $133.15 1.98% 2.51% 4.49%
12/31/2016 $19,268 $240.11 $207.93 $103.82 $135.29 2.06% 2.78% 4.85%
9/30/2016 $18,742 $247.98 $219.46 $98.43 $112.20 2.10% 2.92% 5.01%
6/30/2016 $18,193 $222.77 $201.79 $98.30 $127.50 2.14% 3.22% 5.36%
3/31/2016 $17,958 $208.99 $189.37 $96.67 $161.39 2.15% 3.28% 5.43%
12/31/2015 $17,900 $201.95 $163.76 $99.39 $145.88 2.14% 3.20% 5.33%
9/30/2015 $16,917 $224.14 $204.58 $95.07 $150.58 2.22% 3.30% 5.52%
6/30/2015 $18,219 $230.84 $201.35 $94.45 $131.56 2.03% 3.04% 5.07%
3/31/2015 $18,303 $228.45 $193.05 $93.41 $144.13 1.98% 2.94% 4.92%
12/30/2014 $18,245 $237.14 $202.31 $92.80 $132.63 1.92% 3.03% 4.95%

 

For more information on the buybacks strategy, visit our buybacks category.

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