While each industry and company has specific business and economic considerations during these unprecedented times, Guzman analyzed how share repurchases and dividends in the S&P 500 performed during recessionary periods, including when buyback volumes bottomed out in Q2 2009.
Displaying the more flexible nature of buyback programs, repurchase volumes fell more sharply than dividends during the Great Recession, reaching a low point of $24BN in Q2’09, two quarters after earnings reached their bottom in Q4’08. For comparison, the quarterly average of S&P 500 repurchase volumes in 2019 was $182BN; which was also the amount repurchased in Q4’19, a 3% increase Q/Q. The pre-08/09 recession highs in buyback volumes were $172BN in Q3’07 and averaged $77BN per quarter during the recessionary period of Q4’07 to Q2’09.
2019 averaged 62% payout of earnings in the form of share repurchases, compared to 20% at the buybacks low in 2009. In Q4’19, S&P 500 earnings climbed to their second-highest level of $295BN. For comparison, earnings peaked pre-recession at $194BN in Q2’07, bottomed to –($202BN) in Q4’18, and rebounded to $118BN when buybacks troughed at $24BN in Q2’09.
Regarding sector activity, Tech and Financials have been the largest buyers historically. During the market low in Q2’09, Financials cut buybacks (which was already announced this time around) while more defensive industries like Healthcare and Consumer Staples represented a larger portion. In addition to Financials, airlines and other hospitality names, like Marriott, have also announced repurchase suspensions, as well as a few names in Oil/Gas. So far we have not seen any publicly stated major suspensions being announced in firms in the Tech, Healthcare, or other Consumer sectors, which we are following. One additional factor will be potential restrictions on buybacks in a fiscal stimulus package, which will likely forbid any companies receiving aid to repurchase shares for the duration of the loan plus one year. While we’re clearly in uncharted waters in the economy and world, it’s important to review how the market reacted the last time there was a major economic decline.
Data sources: S&P Dow Jones Indices, Company Filings, Guzman & Company
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