Being a strategic investors usually involves a more active role than buying stocks or ETFs and holding them for years. Then again, some investments manage to keep their advantages for years and years. In the latter case, it makes little sense to sell your biggest winners only to pay capital gains taxes and be forced to look elsewhere to redeploy the capital in something new. One area that is often attractive for strategic investors is the stocks that spending money hand over fist to repurchase their own shares. This is simply chasing good old fashioned stock buybacks, and some of these companies stay on the stock buyback trail for years and years.
Before chasing companies announcing stock buybacks as the main catalyst for a strategic gain, it is important to focus on why a company is buying back so much stock. This is capital that could have been used to make acquisitions. It could have been used to pay handsome dividends, even if they choose “special” dividends to juice the shareholder returns. Some companies have to buy shares to offset the dilution of employee stock options. And other companies simply buy back stock during periods of stock market weakness.
Buybacks can thwart shareholder dilution, but most very large buyback plans shrink the outstanding number of shares by design — giving long-term shareholders just that much more control over the company.
Oggonomics is highlighting some of the current “Buyback Kings” which are currently buying back billions worth of their shares.
BUYBACKS BY THE NUMBERS
Companies are spending billions upon billions to keep shareholders happy by returning capital. Take one estimate and another tally for size. Goldman Sachs projected in March-2024 that U.S. companies will spend $925 billion in buybacks in 2024 and over $1 trillion in buybacks in 2025. In June-2024, S&P Dow Jones Inices announced that buybacks were $236.8 billion in Q1-2024 alone, up 8.1% from the fourth quarter of 2024. S&P also said that figure for buybacks was up 9.9% from Q1-2023’s $215.5 billion. Here are some figures from S&P as well:
- 352 companies reported buybacks of at least $5 million for Q1-2023, up from 313 in Q4-2023 and down from 358 in Q1-2023;
- 380 companies did some buybacks for Q1-2024, up from 373 in Q4-2023 (but down from 390 in Q1-2023;
- and 419 companies did some buybacks in the last 12-month period (also down from 432 in the prior 12-month period).
DON’T FORGET TAXES ON BUYBACKS
The political themes in America often weigh on what companies can do with their own capital. There is currently a 1% federal excise tax on net share buybacks (started in 2023). This tax helped to reduced total Q1-2024 S&P 500 operating earnings by almost 0.5%. This means that companies still view buybacks as a favorable tool to return capital to shareholders. In short, the 1% tax may be a bump in the road and just the new cost of doing business.
THE BUYBACK KINGS
The prime group of companies covered for share buybacks was generally a $4 billion quarterly hurdle. That was not an absolute because some companies have much smaller market caps than the tech giants. If a company has ceased or paused buying back its own shares over the last six to twelve months, then they are not included in this hunt for strategic returns. And stocks where the company pays no dividend have also been excluded. With the exception of companies with off-calendar quarters, the most recent tracking is generally as of Q1-2024 since the Q2-2024 period doesn’t end until June 30.
Alphabet YTD gain 26%
Alphabet Inc. (NASDAQ: GOOGL), parent of Google and YouTube, spent $15.7 billion in buybacks in Q1-2024 and that gave a $62.6 billion tally for the trailing 12-month period. The company recently added another $70 billion to the current buyback plans.
Apple YTD gain 9.2%
Apple Inc. (NASDAQ: AAPL) is the absolute king of all-time share buybacks even with its $3-plus trillion market cap. Apple announced in May that it plans to spend another $110 billion after earnings to buy back its own stock. S&P recently showed that Apple’s Q1-2024 expenditure was $23.5 billion for buybacks alone. That came to a tally of $87.4 billion on buybacks in the trailing 12-month span with some of the buybacks being accelerated plans. This comes to total share buybacks of $429 billion over the last five-year span and $664 billion over a 10-year span.
Caterpillar YTD gain 11.5%
Caterpillar Inc. (NYSE: CAT) remains down about 20% from its all-time high, and the industrial and mining machinery giant with a $160 billion market cap spent some $4.455 billion on buybacks in Q1-2024. That is versus about $2.8 billion in Q4-2023 and just $400 million in Q1-2023.
Cigna YTD gain 12.6%
Cigna Group (NYSE: CI) is another insurer leading buybacks in 2024. With $ billion spent in buybacks in Q1-2024, the company had declared $3.2 billion to be used for accelerated share repurchases in February-2024. It projected the final settlement would occur during Q2-2024 and the accelerated buyback plan was still $10.6 billion as of February — versus a $99 billion market cap at the time. Cigna had also said that the company was planning to use a majority 2024’s discretionary cash flow for share repurchases after spending $5 billion in the first half of the year.
GM YTD gain 32.2%
General Motors Company (NYSE: GM) is buying enough stock back that you could almost joke about it going private. GM was recently trading at just 5-times forward earnings and with a low dividend, so GM’s cash flow and cheap valuations allowed for an additional $6 billion to the previously announced buybacks at a recent investor conference. This new plan kicks in after the remaining $1.1 billion of the total $10 billion was announced in November-2023. Keep in mind that GM is a current favorite for 2024 of Oggonomics for disclosure — and its market cap is just $54 billion.
Meta YTD gain 41%
Meta Platforms, Inc. (NASDAQ: META) announced another $50 billion for buybacks back in February. The social media leader and parent of Facebook spent $18.2 billion on Q1-2024 buybacks and its trailing 12-month buyback tally was $34.6 billion. Meta is still quite new at paying a dividend and it will be interesting to see if Zuckerberg and his board opt first for continued large buybacks or to pay higher dividends.
Microsoft YTD gain 18.1%
Microsoft Corporation (NASDAQ: MSFT) spent $4.2 billion on share buybacks in Q1-2024, up slightly from the $4.0 billion in Q4-2023 but down from the $5.5 billion in Q1-2023.
NVIDIA YTD gain 168%
NVIDIA Corporation (NASDAQ: NVDA) may now be an afterthought regarding stock buybacks since its stock’s valuation keeps surging. It just became the most valuable ahead of Microsoft and Apple at $3.4 trillion! Still, NVIDIA spent about $9.5 billion on buybacks in Q1-2024, versus about $3.5 billion in Q4-2023 and versus about $500 million in Q1-2023.
Wells Fargo YTD gain 20.1%
Wells Fargo & Company (NYSE: WFC) remains under a cloud compared to BofA and JPMorgan Chase. It appears that Wells Fargo is maxing out shareholder returns via buybacks over dividends, with both regulated by the Federal Reserve. Wells Fargo’s current $0.35 dividend is still short of the $0.51 quarterly payout in 2020 when regulators forced the bank to cut its dividend (to $0.10 per quarter at that time). Wells Fargo spent $ billion in buybacks in Q1-2024, up from $2.35 billion in Q4-2023 and up from the $4.01 billion spent in Q1-2023.
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Chasing stock buyback leaders may not be a new strategy at all. That said, even backing out NVIDIA and tech giants show that buybacks help out. At the same time these leaders were all (except Apple) up over 10% so far in 2024 the Dow Jones Industrial Average was up just 4.1% YTD and the S&P 500 was up 15.1% YTD.
There is also an ETF strategy called the Invesco Buyback Achievers ETF (NASDAQ: PKW) for tracking stock buybacks. While its shares are up just 5.5% so far in 2024, it tracks a broader NASDAQ US BuyBack Achievers Index with at least 90% of its total assets invested in common stocks inside the same index. Its top holdings as of June 18 by weighting were as follows:
- Booking Holdings (BKNG) 4.98%
- Marriott International (NAR) 2.57%
- O’Reilly Automotive (ORLY) 2.29%
- Hilton Worldwide (HLT) 2.00%
- AutoZone (AZO) 1.88%
- PulteGroup (PHM) 0.86%
