Apple, the largest listed company in the world by market cap, has spent more than any other on share buybacks over the past decade, totalling more than US$550 billion, according to a Bloomberg report in November 2022, and another US$20 billion or so since then. So much so that the buybacks have become an integral part of the investment thesis for the stock. Investors have come to expect its consistent buybacks — the company does not try to time the market — to reduce stock price volatility, especially in times of heightened market uncertainties and economic slowdown, thus, bolstering the stock’s perceived safe haven status and premium valuations. Many also view it as a sign of management confidence in its prospects.
There is a growing consensus that share buybacks are better than dividends as a means of distributing profits to, and rewarding, shareholders. We agree with this view too as the following analysis shows. This is especially so in the US, where share buybacks are extremely popular with managements and are typically well received by investors. Anecdotal evidence suggests that announcements of share buyback programmes oftentimes give share prices an immediate knee-jerk boost.
Fact: Of the 100 largest companies in the S&P 500 by market cap, 89 spent more on share buybacks than the cash they received from issuances of new shares over the past five years. And 65% of these 89 companies spent more on share buybacks than they did on dividend payouts. Market analysts estimate that total share buybacks could breach US$1 trillion this year, for the first time ever.
