According to S&P Dow Jones Indices (SPDJI), S&P 500 companies set an annual record with $923 billion of share buybacks in 2022, an increase from the prior record of $882 billion in 2021. In 2022, some sectors, such as financials, pulled back spending of their own shares, but the repurchase activity by S&P 500 energy companies rose five-fold.
Share repurchases remained the more popular use of free cash flow, with 439 S&P 500 constituents buying back some stock during the year, compared with 399 companies paying a dividend. While nearly one in five S&P 500 constituents reduced their share counts in the fourth quarter by a meaningful 4% year-over-year, repurchase activity is even more concentrated than one might realize.
A combined $345 billion of stock was repurchased by just 20 companies, equal to 35% of the index’s spending efforts, per SPDJI. Information technology and communications services companies Apple ($94 billion in 2022), Alphabet ($59 billion), Meta Platforms ($32 billion), and Microsoft ($29 billion) were the largest buyers, but energy companies were also big spenders.
For example, Exxon Mobil bought back $15 billion in 2022, up from just $155 million a year earlier. Meanwhile, Chevron, ConocoPhillips, and Marathon Petroleum were among the biggest purchasers of their stock, according to SPDJI data.
Overall, S&P 500 Energy companies bought back $64 billion of stock in 2022, equal to 6.9% of the S&P 500 Index’s share repurchases, up from $13 billion (1.4%), while S&P 500 Financials shrunk from $191 billion to $121 billion year-over-year, according to the index provider. Berkshire Hathaway’s $6.9 billion in 2022, down from $27 billion, is one such example.
The market cap-weighted Energy Select Sector SPDR (XLE) or the alternatively weighted Invesco S&P 500 Equal Weight Energy ETF (RYE) are two ways to get exposure to the S&P 500 Energy sector.
However, as we previously noted, the S&P 500 Index and its energy sector slice do not include MLPs. Companies like Enterprise Products Partners (EPD) and MPLX (MPLX) are listed as ineligible organizational structures, along with business development companies, ETFs, and closed-end funds, according to the S&P Dow Jones methodology document.
While there is no added explanation for the absence, MLPs may be excluded because their tax-advantaged structure adds some complexity, according to Stacey Morris, head of energy research at VettaFi.
This is a shame because the energy sector’s share of the S&P 500 buyback activity would be enhanced if MLPs were included. Indeed, MLPs regularly used their strong free cash flow to reward shareholders last year with buybacks and have ample room for more in 2023.
For example, MPLX bought back $491 million of its shares in 2022 as part of a $2 billion authorization program. With a recent $34 billion market cap, MPLX is of similar size to XLE, as well as RYE constituent and fellow midstream company Kinder Morgan. Meanwhile, EPD bought back $250 million from its $2 billion program. EPD’s recent market cap of $55 billion is like that of S&P 500-domiciled Occidental Petroleum.
Other large-cap MLPs that used free cash flow on share repurchases in 2022 include Western Midstream Partners and Magellan Midstream Partners, which bought back $488 million and $472 million, respectively. Shares of these MLP companies can be found in the Alerian MLP ETF (AMLP) despite not being a part of some of the larger energy sector ETFs tied to the S&P 500.
VettaFi LLC (“VettaFi”) is the index provider for AMLP, for which it receives an index licensing fee. However, AMLP is not issued, sponsored, endorsed or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing or trading of AMLP.