Dividends and After rise in 2019, investors brace for less stock buybacks

In the giant $2 trillion economic stimulus, you heard the President and others suggest that the money for corporations about $500 billion, should not go to stock buybacks. What you may or may not know is how much do US companies buy back their stock?

In an article by Sinead Carew of Reuters, using data from S&P Dow Jones Indices, Howard Silverblatt, a senior analyst noted we can expect fewer buybacks for the next 2 quarters. Companies will be concerned with their liquidity.

US companies spent $181.6 billion on buying back their shares in the 4th quarter of 2019. For the full year of 2019 the number was $728.7 billion down from the record $806.4 billion in 2018. 2018 was the year of the big tax cut.

In the 4th quarter the top 20 companies accounted for 55% of the total, the highest level of concentration since the 1st quarter of 2010 when the top 20 companies accounted for 59.8% of buybacks.

Almost 21% of the companies reduced the shares by at least 4% outstanding.

The top 5 companies buying shares were Apple with $22.1 billion; 3 banks – Bank of America, Wells Fargo, and JP Morgan. The 5 company was Bristol Meyers Squibb (likely because of the merger).

Linking to dividend paying stocks, companies buying back stock is a good thing for it lowers the number of shares outstanding which means earnings per share (EPS) rises which translates into higher multiples for share prices. Returning money to shareholders is a good thing because then the shareholder has options with the money – buy more shares; diversify the portfolio with other companies; have patience for other opportunities, the list is endless. The important thing is the company pay dividends.

There are more questions than answers, till the next time – to raising questions.

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