U.S. companies boost share buybacks despite higher prices
Stock buybacks by U.S. corporations hit their highest level since the 2008 global financial crisis, as companies gobbled up their own shares despite paying steadily rising prices.
Total share repurchases by companies in the Standard & Poor’s 500 stock index reached $128.2 billion in the third quarter, according to researcher S&P Dow Jones Indices. That’s the most since $141.7 billion in the final quarter of 2007.
Buybacks were up 8.6% from the second quarter, and 23.6% in the last year.
Repurchases can be a mixed blessing for shareholders.
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Theoretically, they help prices by reducing the outstanding number of shares, which boosts earnings per share.
However, repurchases at many companies are counter-balanced by the often-plentiful stock options issued to executives, thus dulling the potential improvement in EPS.
And when it comes to their own shares, companies rarely buy low.
For example, S&P 500 companies repurchased only $31 billion of their own shares as stock prices hit their post-crisis low in the first quarter of 2009.
“Just keeping up with the current bull market means that companies have to pay 25% more for the same number of shares they repurchased last year,†said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “However, we are starting to see excess buying, where the repurchases outnumber the issuance, and therefore reduce the share count.â€
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