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According to data from Goldman Sachs, a record US$319 billion of new share buybacks have been authorized so far this year, with a number of companies using accelerated deals to buy large volumes as quickly as possible when their share prices dip.
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As first quarter reporting starts in the coming weeks, companies may seek this last-minute opportunity to goose their earnings per share, and investors looking to cash out may find this an opportune time to take some money off the table.
While investors get whipsawed by markets facing a variety of headwinds, from the ongoing Russian invasion of Ukraine to tightening monetary policy, America’s companies are taking the opportunity to “buy the dip” on their own shares, in an effort to shore up confidence as growth slows.
According to data from Goldman Sachs, a record US$319 billion of new share buybacks have been authorized so far this year, with a number of companies using accelerated deals to buy large volumes as quickly as possible when their share prices dip.
By way of comparison, at the same time last year, there were just US$267 billion in share buybacks, as markets themselves provided the bulk of buying power.
What is perhaps even more startling is that recently listed companies, that usually hold spend cash to fuel growth, are now returning excess to shareholders, after sharp drops in their stock prices soon after hitting public markets, making repurchases appear more attractive.
Share buybacks are not often used to prop up demand for stocks and increase profitability purely on an earnings per share basis, by reducing the number of shares in circulation, which may also be misleading as profits and growth slows across the board.
Earnings growth is forecast to slow as companies battle rising inflation, higher wages and supply chain issues, increasing the appeal of share buybacks to window-dress their earnings.
But on the flipside, it also suggests that companies are confident in their future prospects, using cash to buy back shares, instead of keeping it on their books for the leaner times ahead.
To be sure, share buyback authorizations aren’t typically rolled out immediately, and can take years to execute, but many companies are opting for the flexibility to have that option available at a moment’s notice.
As first quarter reporting starts in the coming weeks, companies may seek this last-minute opportunity to goose their earnings per share, and investors looking to cash out may find this an opportune time to take some money off the table.
