Share repurchases were growing strongly up through Q1 2020 before being cut in (more than) half in Q2. They rebounded moderately in Q3, before the pace accelerated in Q4'20 and further in Q1'21.
In Q1’20, companies in the S&P 500 repurchased just shy of $200BN worth of shares. In Q2, that number fell by 55% to $89BN as over 150 companies began announced the suspension of their buyback programs starting in mid-March. In Q3, as some companies restarted their programs, volumes rose $102BN. This trend continued and accelerated in Q4 with $131BN of share repurchases in the S&P 500. As more and more companies restarted their buyback programs, including much of the Financial sector, buybacks rose another 36% Q/Q to $178BN in Q1’21. The first quarter of 2021 fit the profile of a pre-pandemic quarter for share repurchases.
Pre-Q2, over the past 20 years buyback volumes have grown 450%+ or ~23% CAGR. Dividends have grown by about half that amount: 262% or ~12% CAGR.
Quarterly buyback volume records:
- Q4’18: $223BN
- Q1’19: $205BN
- Q3’18: $204BN
- Q1’20: $199BN
- Q2’18: $191BN
Volumes should rise meaningfully further in 2021, as more and more companies reenter the market including the financial sector.
The market level buyback yields (repurchases divided market cap.) in Q3 fell to 2.1% and 1.6% in Q4 and to 1.5% in Q1, below the average of around 3% (depending on time frame). This is on the backs of record high prices in the indices.
Historical factors that have contributed to buybacks growth:
- Strong earnings growth and margins in corporate America
- Earnings are a strong leading indicator of buybacks, with a 0.82 correlation to following quarter volumes.
- Corporate tax cuts boosting net income plus cash repatriations add to cash available for repurchases at some large buyers
- Buying in bulk: volume largely driven by the biggest buyers in the market
- Flexibility: during times of market or economic uncertainty, the flexibility of buybacks vs dividends have been utilized
Data sources: S&P Dow Jones Indices, Guzman & Co.
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