After a strong year of earnings, corporate America could spend more on share buybacks and dividends in 2022, potentially supporting exchange traded funds that target the buyback theme.
Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, a unit of S&P Global Inc., argued that companies have made a strong recovery from the blow dealt by the coronavirus pandemic and are in a period of hale growth, which should give them ample leeway to reward their shareholders, the Wall Street Journal reports.
“Most of the companies have significant cash-flow positions right now,” Silverblatt told the WSJ. “There’s enough cash to do almost anything.”
S&P 500 companies are sitting on $3.78 trillion in cash and cash equivalents as of the end of the third quarter, compared to $3.41 trillion a year ago and $2.19 trillion from the 2019 period, according to S&P Global Market Intelligence data.
In 2021, S&P 500 company share repurchases are projected to hit a record of $850 billion, or up 63.6% year-over-year when many companies paused those programs during the pandemic, and 16.6% in 2019.
For the third quarter alone, buybacks hit $234.6 billion, or more than the previous $223 billion record from back in the fourth quarter of 2018.
S&P data showed that companies also paid out record cash dividends averaging $15.36 per share in the third quarter, compared to $13.97 for the same period last year.
Looking ahead, companies’ capital-allocation strategies for 2022 likely won’t change, even if a new COVID-19 variant like Omicron affects the economy or if Congress enacts new legislation to hike corporate taxes.
As more companies look to add value through share repurchases, ETF investors can also capitalize on the potential opportunity through buyback-themed ETF strategies.
For instance, ETF investors who believe in a rise in share repurchases can look to ETFs that specifically target companies that implement buyback schemes, including the Invesco Buyback Achievers ETF (NYSEArca: PKW) and the iShares U.S. Dividend and Buyback ETF (Cboe: DIVB).
PKW includes a broader selection of U.S. companies that have affected a net reduction in shares outstanding by 5% or more in the trailing 12 months. DIVB is comprised of U.S. stocks with a history of dividend payments and/or share buybacks where holdings include those with the largest dividend and buyback programs in the market measured by dollar value.
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