Following a recent report that U.S. dividends surged to a new high in dollar terms in the first quarter, it’s not a stretch to say that some investors are prizing payouts over share repurchase programs.
However, market participants shouldn’t gloss over opportunity with shares of companies that are dedicated buyers of their own stock. That’s particularly true today because amid a slack five months for stocks, companies buying their own equity today might be getting some good deals.
Investors who don’t want to stock pick among buyback fare may want to evaluate the Invesco BuyBack Achievers ETF (PKW). Up 5.36% over the past week, PKW is showcasing the benefits of embracing companies committed to shareholder rewards, as the Invesco exchange traded fund is outperforming the S&P 500 by 331 basis points year-to-date.
PKW, which tracks the NASDAQ US BuyBack Achiever Index, is relevant today because like dividends, buybacks are soaring.
“Meanwhile, buybacks are at record highs. Stock repurchases have already posted a new 12-month record of $953 billion, with 86% of first-quarter buybacks reported, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices,” reported Hannah Miao for CNBC.
PKW is home to 153 stocks. That’s not the deep lineup investors are accustomed to in traditional broad market funds, and that’s the result of stringent criteria for entry. The NASDAQ US BuyBack Achiever Index mandates that member firms trim shares outstanding counts by at least 5% over the trailing 12 months.
Of note to investors considering PKW is the point that some of the ETF’s holdings don’t just meet the requirement for entry — they easily exceed it. For example, Charter Communications (NASDAQ:CHTR), eBay (NASDAQ:EBAY), and HP (NYSE:HPQ) each reduced shares outstanding tallies by more than 15%.
“Warren Buffett’s Berkshire Hathaway in April revealed a major stake in HP. Analysts characterized the investment as a classic Berkshire value play, given the consistent capital returns generated by HP’s aggressive buyback program and sizable dividends,” according to CNBC.
Best Buy (NYSE:BBY), DaVita (NYSE:DVA), and Synchrony Financial (NYSE:SYF) — a PKW holding — trimmed shares outstanding counts by at least 11%. Bath & Body Works (NASDAQ:BBWI), another one of PKW’s consumer discretionary holdings, reduced its shares outstanding by 14.4%.
With the 5% reduction in shares outstanding requirement in mind, PKW is sector agnostic. However, some sectors are more fertile territory for big share buybacks than others. On that note, PKW has no utilities exposure. Conversely, financial services and consumer cyclical stocks combine for over half the fund’s weight.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
