In the third quarter, share buybacks among S&P 500 member firms tallied $185.6 billion. That’s up 6.1% on a sequential basis. But it’s down 12% year-over-year.
“281 companies reported buybacks of at least $5 million for the quarter. That’s down from 304 in Q2 2023 and down from 319 in Q3 2022. 362 companies did some buybacks for the quarter, down from 367 in Q2 2023 and down from 384 in Q3 2022. 428 companies did some buybacks for the 12-months ending September 2023, down from 441 in the prior 12-month 2022 period,” according to S&P Dow Jones.
The depth of buybacks is notable. But that also implies investors need to be selective when identifying broad-based strategies in the name of share repurchases. Among ETFs, the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are credible options for investors looking to access baskets of buyback-committed companies.
Top-Heavy Buybacks Highlight Utility of QQQ, QQQM
Those two ETFs track the Nasdaq-100 Index (NDX). That’s relevant in the buyback conversation because technology is the epicenter of repurchase activity on a percentage basis.
“For Q3 2023, the sector increased their expenditure 3.0% to $48.6 billion, representing 26.2% of all S&P 500 buybacks. This compared to the $47.1 billion spent in Q2 2023, which represented 27.0% of all buybacks; for Q3 2022, the sector spent $60.8 billion, 25.2% higher. For the 12-month September period the sector spent $199.3 billion, down 28.6% from the prior period’s $279.2 billion,” noted S&P.
In the third quarter, the top five buyers of their own shares in dollar terms were, in order, Apple (AAPL), Alphabet (GOOG), Meta Platforms (META), Microsoft (MSFT) and Nvidia (NVDA).
Apple, Microsoft, and Nvidia are three of the top four technology holdings in QQQ and QQQM. They combine for over 21% of the ETFs’ rosters. Meta and Alphabet, the parents of Facebook and Google, are the funds’ top two communication services components. That duo combines for almost 11% of QQQ’s and QQQM’s portfolios.
Those five stocks and four other members of the QQQ/QQQM rosters were among the top 20 buyback names in Q3. Many members of these ETFs generate significant free cash flow. That can be used to finance buybacks. And that trend is expected to continue.
“Top-tier cash flow issues however are seen as continuing their buybacks and positively impacting their EPS. Notably, and potentially adding to the cost later in 2024, is the ongoing budget discussions and quest for government income as increasing the 1% buyback tax appears to be an attractive target from both sides of the aisle,” noted S&P’s Howard Silverblatt.
For more news, information, and analysis, visit the ETF Education Channel.
