Corporations are already making their Christmas list for 2022

Senior Analyst

Marketing Brew

I know that we just finished Christmas, and most people still have their tree up, but it looks like corporations are already making their list for next year. And what's at the top of their list? To buyback their own shares. Everyone from the WSJ to Bloomberg to MarketWatch have reported that companies are preparing to pour record amounts of cash into buybacks and dividends. According to analysis conducted by Senior Index Analyst Howard Silverblatt, S&P 500 companies spent a record $234.6 billion on buybacks in Q3. However, if you just rely on the headlines, you don't get the full context. "While companies spent a record amount on share buybacks for Q3 2021, their expenditures appear cautious when measured against their earnings and market value," Silverblatt said in an email on Tuesday. He noted that S&P 500 buybacks as a percentage of the market value of the index's companies was 0.64% in Q3. Though it's been rising in recent quarters, it's still below the 10-year average of 0.73%.

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It's important to keep in mind that earnings are rising. So while buybacks seem high, they are certainly much higher today than they were when buybacks set their previous record in Q4 2018. Objectively, looking at the data, companies aren't buying near the amount of stock that they can. Stock buybacks are a nuanced topic that we'll definitely spend some more time diving into. But I think one key takeaway to keep in mind is be wary of those sounding alarms about record-high buybacks without the context of market cap and earnings.

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