As the economic fundamentals improve, corporate profits rise, and interest rates gradually approach, more and more companies in the US stock market are joining the "buyback army". Data shows that the scale of stock buybacks in May skyrocketed, reaching a historic high. For a long time, US stock buybacks have been regarded as an important driving force for the stock market's "long-term prosperity".
According to Birinyi Associates, US listed companies announced $201 billion in stock buyback plans in May, an increase of 41% year-on-year, setting a new record for the highest amount of buybacks in that month in history, and the fifth highest on record.
As of the second quarter of 2024, the stock buyback amount of S&P 500 constituent companies is currently $33 billion, the highest level since the second quarter of 2022 and ranks high on the quarterly buyback amount list in the past seven years.
Goldman Sachs preliminarily predicts that the stock buyback amount of S&P 500 constituent companies will increase by 13% to $934 billion in 2024, and will increase by 16% to $1.1 trillion in 2025, surpassing the $1 trillion mark for the first time in history during a single year. This is mainly due to the optimistic outlook for the US economy, expectations of loose financial conditions, and the strong profit support from large technology companies such as Apple, Nvidia, Microsoft, and Google.
When a company's profits rise, its cash flow increases. Companies usually increase their buyback efforts or expand capital expenditures to support stock prices. Among them, share buybacks reduce the number of outstanding shares on the market, thereby increasing earnings per share and pushing up stock prices.
Binky Chadha, Chief Stock Strategist at Deutsche Bank, said that the importance of stock buybacks is obvious, and this is a "vote of confidence" that US companies have placed on the economic outlook. In 2023, although US company profits rebounded, the scale of stock buybacks did not keep up, which may be related to the expectation of most people at that time that the US economy would fall into a recession. But in 2024, as the macroeconomic fundamentals gradually improve, corporate buyback confidence also began to increase.
Massive stock buybacks may become a driving force for the continued rise of US stocks. Scott Rubner, a technical analysis expert at Goldman Sachs, wrote that of the $934 billion in stock buybacks expected to be conducted this year, as much as one-sixth is expected to be executed smoothly in May and June.
This year, the scale of US buybacks rebounded sharply, led by large technology giants such as Apple, Google, and Meta. Most of these large technology companies are mature companies with slow growth but stable income and sufficient cash. They are a stable choice for investors pursuing security.
This year, affected by macroeconomic headwinds and the decline in iPhone sales, Apple only slightly rose during the year, and its performance was not outstanding compared to other technology stocks. However, in terms of buybacks, Apple is "far ahead". At the beginning of May, Apple announced a $110 billion buyback plan in the first-quarter earnings conference call, and the amount of buybacks for its shares alone accounted for more than half of the total amount of buybacks in the US stock market that month.
It is worth mentioning that Apple has always attached great importance to shareholder returns. In the 2023 fiscal year, Apple returned $78 billion to shareholders through buybacks, reducing the number of outstanding shares by about 2%. From 2013 to 2023, Apple invested a total of $621 billion in buybacks.
According to Google's Q1 financial report, the company's total revenue in Q1 was $80.54 billion, a year-on-year increase of 15%, the fastest growth rate since early 2022, and higher than the market's expected $79.04 billion; net profit soared 57% year-on-year to $23.66 billion, higher than the expected $18.95 billion; adjusted earnings per share was $1.89, which far exceeded the expected $1.53 and increased by 61.5% year-on-year from $1.17 in the same period last year.
Google, with greatly improved profitability, is also "generous" with shareholders. For the first time in the company's history, it distributed quarterly dividends and distributed cash dividends of 20 cents per share. It also announced that it will buy back Google stock worth $70 billion.
Meta's stock price has been very strong in the past two years, with a cumulative increase of nearly 300%, second only to Nvidia among the seven giants of the US stock market. The company's first-quarter revenue was $36.46 billion, higher than analysts' expected $36.12 billion, an increase of 27% year-on-year, and also the fastest expansion rate in three years since 2021; net income was as high as $12.37 billion, a year-on-year increase of 117%. In January, Meta also announced a share buyback plan of up to $50 billion.
In its buyback actions over the past five years, Meta has reduced its overall floating shares by 11%. As the number of floating shares decreases, the remaining value per share will increase.
In addition, investors who hope to achieve stable returns through share buybacks can also pay attention to the buyback ETF on the US stock market----$Powershares Exchange Traded Fd Tst Buyback Achievers (PKW.US)$This ETF, which specifically tracks the company's share buyback performance, has outperformed the S&P 500 index in the long term. Since 2007, this "buyback ETF" has accumulated an increase of more than 4 times, while the S&P 500 index has accumulated an increase of 270% over the same period.
Related reading:Want to be stably happy? This ETF on the US stock market has outperformed the S&P 500 index in the long term
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