“Companies have been increasing their buybacks and dividends to please investors for years. Total payouts from S&P 500 companies surged 84% in the past decade to $934 billion in 2014, from $507 billion in 2005, according to a report by S&P Capital IQ,” reports CNN Money.
Stock buybacks helped diminish the number of shares outstanding, which has made the remaining shares that much more valuable. However, a company stock can still dip and repurchased shares can be distributed through employee options as part of their compensation.
When a company engages in repurchasing plans, it is giving up potential growth. Management could have used the money for more practical applications, such as research and development or new products. [Buyback ETFs to Capture Record Company Stock Repurchases]
“Another concern is that buybacks have continued to ratchet up as the value of American stocks — measured by the P/E ratio — remains high and it’s costing companies a bundle,” adds CNN.
PowerShares Buyback Achievers Portfolio
