Share buybacks are likely to continue their acceleration into 2014 even as stock price increases make them more expensive.
Buybacks by S&P 500 companies in the fourth quarter of 2013 reached around $129.4 bn, exceeding the Q3 total of $128 bn, according to preliminary estimates by S&P Dow Jones Indices. And buyback announcements in the first quarter of this year herald a further increase in 2014.
Apple, which set a quarterly record of $16 bn in buybacks in the second quarter of 2013, has already announced another $14 bn in buybacks this year, while Dow Chemical plans to buy back $4.5 bn in shares this year and American International Group authorized another $1 bn in buybacks last month.
Companies likely closed 2013 by setting a sixth consecutive quarterly record in terms of cash holdings, with $1.29 tn in cash at the end of the year from $1.25 tn at the end of the third quarter and $1.1 tn at the end of 2012. That level ‘is enough for companies to do whatever they want,’ writes S&P Capital IQ’s Global Market Intelligence unit in its latest market report.
‘Buybacks have been the rage, but companies are going to have to spend 30 percent more to buy back the same number of shares in 2014 as they did in 2013 (since prices have gone up),’ the report continues. ‘The share count is more relevant to EPS and, on that count, we are seeing a greater number of companies reducing their share counts, which is providing a tailwind to earnings.’
According to data from FactSet, the number of S&P 500 companies engaged in buying back shares in the 12 months through the third quarter of last year was 431, or 86 percent of the index. That means buybacks were more common than dividend payments even though dividends were paid by 417 companies at the same time, setting a 17-year record high.
