Driven by the AI boom and expectations that the Federal Reserve will cut interest rates, US stocks have ushered in a carnival wave of upward movement.$S&P 500 Index (.SPX.US)$It has reached a new high for the 20th time in the year.

However, Wall Street banks believe that the rise in US stocks is far from over because stock buybacks, the key upward catalyst for US stocks, are still very hot.

Wall Street bank Goldman Sachs predicts that the scale of stock repurchases by US companies will increase by 13% to 925 billion US dollars this year, and further increase by 16% to 1.075 trillion US dollars in 2025.

In the US stock market, there is an ETF that specifically tracks the company's share repurchase performance —$Powershares Exchange Traded Fd Tst Buyback Achievers (PKW.US)$It has outperformed the S&P 500 index for a long time. Since 2007, this ETF has accumulated a cumulative increase of more than 4 times, while the cumulative increase of the S&P 500 index during the same period was 270%.

How can this strategy outperform the index?

As can be seen from the S&P 500 return breakdown over the past decade, 6.1% came from multiple expansions (21% at peak), 57.3% from earnings (31.4% at peak), 9.1% from dividends (7.1% at peak), and 27% from share repurchases (40.5% at peak). This also confirms that buybacks are an important engine in the history of US stock growth.

CITIC Construction Investment Securities also stated that buybacks are a common way to give back to shareholders in the US stock market, which has greatly contributed to the increase in stock yields. Dividend repurchase proceeds occupy a very important position in total stock returns, and can even be said to be the main source of income for US stocks.

There are three main reasons why American companies are adopting such aggressive repurchase strategies:

1) Increase corporate ROE/EPS, thereby increasing stock prices.

2) Improve capital structure and reduce agency costs. Stock buybacks reduce the company's net capital, leading to an increase in financial leverage, which in turn strengthens restrictions on management. In the US stock market, listed companies can even make repurchases by issuing bonds.

3) Reasonable tax avoidance. Using bonds to repurchase shares can use the tax shield effect of debt to achieve reasonable tax avoidance. Furthermore, compared with direct payment of cash dividends, since capital income is generally not taxed or the tax rate is low, the method of distributing dividends through stock repurchases can achieve effective tax avoidance and benefit shareholders more. Therefore, compared to cash dividends, enterprises prefer to pay dividends through repurchases.

What are the repurchase kings in the US stock market?

Among the US stocks “Magnificent Seven” (Magnificent Seven)$Microsoft (MSFT.US)$,$Apple (AAPL.US)$,$Meta Platforms (META.US)$versus$Alphabet-C (GOOG.US)$Buybacks are more active and stable.$NVIDIA (NVDA.US)$At the same time as rapid growth, repurchases are also increasing, while Tesla and Amazon have fewer repurchases.

Among them, Apple repurchased a total of 83.92 billion US dollars in 2023, Google repurchased 61.504 billion US dollars, Meta and Microsoft repurchased 26.786 billion US dollars and 20.044 billion US dollars respectively, and Nvidia bought back a total of 12.316 billion US dollars.

Notably, Meta Platforms can be described as fully leading the “2024 US Stock Buyback Group”. Meta previously announced strong fourth-quarter results. The company's profit tripled while providing first-quarter revenue growth guidance that exceeded expectations. Additionally, the company also announced plans to buy back another $50 billion in shares and pay its first quarterly dividend. Cloud software giant Saifushi will distribute an initial quarterly dividend of 40 cents per share to shareholders on April 11.$Salesforce (CRM.US)$It also increased its share repurchase program by $10 billion, to a total of $30 billion.

CITIC Construction Investment Securities believes that active and stable repurchase behavior highlights the steady profitability and cash flow of leading stocks, while also boosting investors' good expectations for the company by increasing EPS and ROE, and attracting continued inflows of incremental capital. Active repurchases and consolidation of fundamentals coexist, forming a virtuous cycle.

Cow friends,

Do you think the buyback strategy can outperform the market?

Which Buyback King do you like the most?

Welcome to leave your thoughts in the comments section

Editor/Somer