As investors navigate an uncertain market, finding financially strong companies has become a priority. During the recent S&P 500 Buyback Aristocrats: Quality Through Consistency webcast, speakers discussed why a long track record of share buybacks may be one indicator of a financially strong company. The discussion examined today’s buyback landscape, the methodology behind the S&P 500 Buyback Aristocrats Index, and how investors can use a rules-based approach to invest in companies with a decade-long record of reducing shares outstanding.
Key Takeaways
- The S&P 500 Buyback Aristocrats Index differentiates itself from broader buyback strategies by tracking companies that have achieved a net reduction in outstanding.
- Companies now return more money to shareholders through buybacks than dividends.
- BUYB is the first and only ETF focused exclusively on companies with a long history of buying back their own shares.
- Buyback and dividend strategies can complement one another.
The Evolving Share Buyback Landscape
The discussion opened with an overview of the economic conditions shaping how companies use their cash. Cinthia Murphy, director of research at VettaFi, said that one of the central questions for advisors is whether a share buyback reflects corporate confidence and undervalued stock prices — or simply a lack of better uses for extra cash.
Buybacks Now Rival Dividends as a Source of Returns
Simeon Hyman, global investment strategist at ProShares, noted that buybacks have become an increasingly important source of shareholder returns. This trend has developed over the past two decades.
“As of today, buybacks are actually larger every year than the amount of dividends payout,” he said. This trend has proven resilient. It has persisted through legislative changes such as the Inflation Reduction Act of 2022. The law introduced a 1% excise tax on buybacks that took effect in 2023.
Market Breadth, Inflation, and the Growth Outlook
To explain why companies continue to use buybacks to return cash to shareholders, Hyman outlined several macroeconomic factors. While momentum has dominated the market recently, a notable broadening has occurred across company sizes. Recently, the equal-weighted S&P 500 has outperformed, with that strength extending into mid caps and small caps. This outperformance has surprised some investors who assumed small caps would suffer amid Middle East energy disruptions and expectations of sticky inflation.
Hyman also challenged the idea that today’s buybacks are primarily debt-financed. He pointed to historically low net debt-to-EBITDA ratios across the S&P 500. This suggests companies are funding repurchases through strong profitability rather than excessive borrowing.
Addressing concerns about capital spending and inflation, Hyman noted that while AI investment has fueled significant spending in infrastructure and semiconductors, overall U.S. capacity utilization remains within a historically non-inflationary range. As a result, he argued that earnings growth — not interest rates alone — will continue to be the primary driver of equity returns.
See more: ProShares Leaders Q&A on Dividend Aristocrat Suite
S&P 500 Buyback Aristocrats Index Methodology
The discussion then turned to the index methodology. Unlike plain-vanilla buyback indexes that track companies indiscriminately based on short-term repurchases, the index requires constituents to reduce the number of shares outstanding for at least 10 consecutive years.
Kieran Kirwan, director, investment strategy at ProShares, explained that this strict longevity requirement ensures that firms are not included if their share repurchases are merely offsetting issuing new shares to employees through stock compensation. “The screen in our case is very simple,” Kirwan remarked. “You’ve either bought back your shares consistently over a decade or you haven’t.” This filter aims to isolate companies with careful use of company cash and consistently strong cash flow.
Hyman added that maintaining this track record requires steady profits rather than aggressive borrowing. From a fundamental perspective, the index exhibits superior quality traits under the traditional DuPont formula, which evaluates return on equity (ROE) via asset turnover, profit margins, and leverage. Hyman noted that the S&P 500 Buyback Aristocrats Index generates a materially higher ROE than the standard off-the-shelf S&P 500, despite maintaining a highly conservative aggregate net debt-to-EBITDA ratio of 1.4.
The equally weighted index currently holds 68 companies and rebalances quarterly, preventing individual holdings or sectors from becoming overly concentrated while maintaining diversified exposure.
A Complementary Allocation to Dividend Growth
The speakers also discussed how a buyback-focused strategy can complement dividend growth allocations. While both approaches emphasize companies with a history of returning capital to shareholders, the indexes have relatively little overlap.
Of the 68 companies in the S&P 500 Buyback Aristocrats Index and the 69 companies in the S&P 500 Dividend Aristocrats Index, only 13 appear in both benchmarks. According to Kirwan, that limited overlap creates different mixes of sectors and companies exposure despite the two strategies sharing a focus on shareholder returns.
He noted that Dividend Aristocrats tend to have greater representation in defensive sectors such as consumer staples and industrials, while the Buyback Aristocrats Index includes companies such as Apple (AAPL) and Applied Materials (AMAT) that have maintained long-term records of reducing shares outstanding. As a result, the speakers said that the two approaches may complement one another across different market environments.
BUYB and the S&P 500 Buyback Aristocrats Index
Launched recently, the ProShares S&P 500 Buyback Aristocrats ETF (BUYB) represents the first and only ETF focused on companies with long records of buying back their own shares.
Carrying a 0.39% expense ratio, BUYB offers rules-based exposure to companies that have reduced shares outstanding for at least 10 consecutive years.
In closing, the panel argued that consistency matters more than one-time buyback announcements. According to the speakers, companies that have reduced shares outstanding over long periods may demonstrate careful use of company cash and steady profits — characteristics that can complement traditional quality and dividend-focused equity strategies.
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