Corporate America is still sitting on large cash hoards, and more companies are putting money back to work through record stock repurchasing. Meanwhile, investors can also capitalize on the potentially enhanced returns through buyback-related exchange traded funds.
Investors who are interested in the buyback theme as a way to bolster shareholder returns have a few options available. For instance, the PowerShares Buyback Achievers Portfolio (NYSEArca: PKW) includes U.S. companies that have effected a net reduction in shares outstanding by 5% or more over the trailing 12 month period. PKW gained 3.6% year-to-date. [Buyback ETFs Notch Another Solid Year]
Additionally, the TrimTabs Float Shrink ETF (NYSEArca: TTFS) and the Cambria Shareholder Yield ETF (NYSEArca: SYLD) both include companies that return capital to shareholders through stock repurchases. Year-to-date, TTFS increased 5.6% and SYLD rose 3.4%. [A Selective Approach to Buyback ETFs]
These buyback-related ETFs could continue to perform as corporations set more money aside to repurchase shares. For instance, according to Birinyi Associates, large companies executed a record $141 billion in buybacks in April, the highest monthly amount ever, reports Anora Mahmudova for MarketWatch.
“On individual case-by-case level, there are probably many companies for which buybacks are a justifiable use of cash,” Robert Leiphart, analyst at Birinyi Associates, said in the article. “But in aggregate, it does appear widespread buybacks are happening at the expense of new hiring or capital expenditures.”
Birinyi Associates also pointed out that U.S. companies have already announced $398 billion in repurchases, the strongest start to any year ever.
In 2014, U.S. companies spent $679.5 billion on buybacks, and if the current pace of share repurchases continues, S&P 500 companies are set to exceed previous records. Birinyi expects buybacks to hit $1.2 trillion this year, compared to the previous record of $863 billion in 2007, reports Dan Strumpf for the Wall Street Journal. [Buyback ETFs: Companies Fueling Their Own Stock Growth]
Corporate America has been holding on to cash in the years following the financial crisis and have recently put that money to work through shareholder-friendly programs, like dividends and buybacks, which have helped fuel the multi-year rally and supported valuations through reducing open shares.
For more information on stock buybacks, visit our buyback category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of TTFS.