Stock Buybacks Rebound Sharply

Insights | Stock Buybacks Rebound Sharply

Author: David I. Templeton, CFA, Principal and Portfolio Manager

Earlier this past week S&P Dow Jones Indices (.xls) reported dividend and buyback activity for the S&P 500 Index through the end of the  2021 calendar year and what a difference a year makes. For the fourth quarter of 2021, S&P 500 dividend payments increased 10.1% on a year over year basis (YoY). Buybacks in Q4 2021 more than doubled the amount in Q4 2020, $270.10 billion versus $130.52 billion, an increase of 107%.

S&P 500 Buybacks and dividends fourth quarter 2021

Some buyback highlights:

  • For all of 2021 Apple (AAPL) was the largest buyback participant at $88.3 billion followed by Meta Platforms (FB) at $50.1 billion.
  • The company with the largest increase in buyback dollars was Meta Platforms with 2021 buybacks totaling $50.1 billion versus 2020 buybacks totaling just $9.8 billion.
  • Berkshire Hathaway (BRKb) once eschewed buybacks but they were the largest buyback participant in the financial sector in 2021, buying back $27.1 billion of the company's stock followed by Wells Fargo (WFC) at $14.7 billion.
  • In evaluating the dividend and buyback results on a combined basis, the increase for Q4 2021 versus Q4 2020 was 60.2%. For the entire 2021 calendar year the combined buyback plus dividend amount increased 38.9% versus 2020. The primary driver of this increase was buybacks increasing 69.6% in 2021 versus 2020.

As an observation, investors should place more reliance on the activity around a specific company's dividend practices versus its buyback activity. As the 2020 pandemic year showed, a company facing financial headwinds can quickly stop buybacks. Just as the pandemic economic shutdown was underway, S&P 500 Index company Q2 2020 buybacks declined by $110 billion while dividend payments were down just under $8 billion. Companies committed to maintaining a dividend that grows annually tend to be higher quality and more able to weather a tougher economic environment and can be better investments over the long run.

Disclosure: Firm/family long AAPL, BRKb

HORAN Capital Advisors, LLC is an SEC registered investment advisor. The information herein has been obtained from sources believed to be reliable but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Market conditions can vary widely over time and there is always the potential of losing money when investing in securities. HCA and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.