As prices declined and market volatility rose, companies continued their record-breaking buyback and dividend expenditures in the first quarter and are expected to maintain their buyback activities for Q2 through the ongoing price downturn.
The record expenditures led to 17.6% of the companies in the S&P 500 increasing their earnings-per-share by at least 4%, thanks to their newly lowered share counts, up from the 5.8% in Q1 2021, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Data from S&PDJI show that Q1’s share repurchases were a record $281 billion, up 4% from Q4 2021’s record $270.1 billion expenditure and up 57.8% from March 2021’s $178.1 billion.
In addition, 374 companies reported buybacks of at least $5 million for the quarter, up from 325 in Q4 2021 and up from 335 in Q1 2021. Meanwhile, 395 companies did some buybacks for the quarter, up from 383 in Q4 2021 and up from 370 in Q1 2021.
For the 12 months ending March 2022, 432 companies did some buybacks, up from 416 during the prior period. The 12-month March 2022 buyback record of $984.6 billion is expected to surpass the $1 trillion mark for the first time for June 2022.
While the EPS uplift remained well below the almost 24.9% rate of Q1 2019, the direction remained consistent, with declared new programs setting the stage for increased buying throughout 2022.
With companies expected to keep buying back their stocks through the second quarter, this means companies will be getting more shares for their expenditures and reducing share counts even further, resulting in higher EPS. “Operating earnings, which had set a record in Q4 2021, declined an estimated 13% in Q1 2022, but are expected to rebound in Q2 2022, with more issues benefiting from lower share counts and therefore adding stronger tailwinds to their EPS,” Silverblatt wrote.
Beyond Q2, companies are at least expected to cover exercised options, with stronger cash flow issues continuing to reduce shares.
“Given the strong base buying, expected earnings, even with the current level of inflation, a consumer spending slowdown and lower margins, buybacks could easily set another record in 2022,” Silverblatt added.
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).
PKW benchmarks to the NASDAQ US BuyBack Achiever Index and 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.
PKW has an expense ratio of 0.64%.
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