Share Buybacks On The Way To Another Record

Companies are unveiling plans to repurchase their own shares at a record pace, buoying a battered stock market.

S&P 500 firms have set $238 billion in buyback plans during the first two months of 2022, according to data from Goldman Sachs Group Inc. GS 1.29%, which is the highest for this point in the year.

They seem to be taking advantage of the volatility that has been rocking the markets lately. Stocks have come under pressure this year on concerns about the pace of the Federal Reserve’s plan to raise interest rates, Russia’s invasion of Ukraine and rising commodity prices that could bring the economy to a halt. The S&P 500 is down 11% since the beginning of the year.

Buybacks can support shares by reducing the number of shares a company has, increasing its earnings per share. And they can boost investor sentiment by suggesting that executives are optimistic about the prospects for their companies and confident in their financial health.

“It adds a level of overall support during times of volatility,” said Anthony Saglimbene, global market strategist at Ameriprise Financial.

Union Pacific Corp. UNP 0.96% leads the way, laying out roughly $25 billion in share buyback plans, while PepsiCo Inc. PEP 1.99% and industrial gas company Linde PLC said they planned to buy back up to $10 billion. in stock.

The surge in activity continued into March. Amazon.com Inc. AMZN 3.89% said last week it would buy back up to $10 billion in shares, while Colgate-Palmolive Co. CL 2.07% and Best Buy Co. BBY 4.67% have unveiled plans for $5 billion.

Goldman analysts recently raised their 2022 buyback forecasts to a record $1 trillion, representing a 12% increase from last year, when buyback activity helped the S&P 500 rally 27%.

Analysts say buybacks are close to their all-time highs and the number of active programs has doubled from what it used to be.

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To be sure, some investors are concerned that buybacks are redirecting corporate spending away from capital investment, research and development, and workers’ salaries, boosting stock prices in the short term at the expense of long-term gains.

In mid-December, the Securities and Exchange Commission proposed stricter repurchase disclosure requirements that would force companies to detail their rationale and the criteria used to determine the number of shares to be repurchased.

That hasn’t stopped companies from planning new buyouts this year.

“Over the past six to twelve months, companies have built something of a fortress on their balance sheets,” said Jessica Behmer, portfolio manager at Eastern Investment Partners. “They can protect their company in a way that gives us some comfort as we navigate through uncertainty.”

Email Hardika Singh at [email protected]

Since 2010, S&P 500 companies have invested more than $5.3 trillion in share buybacks. The WSJ explains how share buybacks work and why there is debate about whether they are good for the economy.