12/12/21, 3:12 PM Buybacks Hit Record After Pulling Back in 2020 - WSJ

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FINANCE

Buybacks Hit Record After Pulling Back in 2020

Trend expected to continue as S&P 500 companies top $234 billion in third-quarter repurchases

Hertz Global Holdings is among the companies planning to buy back shares, recently putting the
amount at as much as $2 billion of its stock.
PHOTO: JOE RAEDLE/GETTY IMAGES

By
Karen Langley
Follow

Dec. 12, 2021 5:30 am ET

Stock buybacks are back.

Companies in the S&P 500 repurchased $234.5 billion in shares during the third quarter,
topping the previous record of $223 billion in the fourth quarter of 2018, according to
preliminary data from S&P Dow Jones Indices. The wave of share repurchases has helped
propel U.S. stock indexes to dozens of records in 2021. The S&P 500 is up 25% this year,
notching 67 record closes.

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12/12/21, 3:12 PM Buybacks Hit Record After Pulling Back in 2020 - WSJ

S&P 500 performance

50%

40

30

20

10

-10

-20

-30

2020 '21

Source: FactSet

More buybacks are coming. Howard Silverblatt, senior index analyst at S&P Dow Jones
Indices, said he projects that S&P 500 buybacks will reach $236 billion in the fourth
quarter.

S&P 500 component

Microsoft Corp.
said in September that its board had approved a plan
to repurchase up to $60 billion of its stock. Car-rental company
Hertz Global Holdings Inc.
recently said it would buy back as much as $2 billion of its stock, while tech company
Dell
Technologies Inc.
is planning a $5 billion share-repurchase program. 

Buybacks are just one of the forces behind the stock market’s rally. Asset prices have
continued to benefit from the monetary and fiscal support that policy makers put in place
to help the economy get through the pandemic. And analysts have consistently
underestimated corporate earnings, which are expected to grow 45% in 2021 for
companies in the S&P 500. 

Investors this week will scrutinize signals out of the Federal Reserve’s two-day policy
meeting, where officials may accelerate the process of winding down a bond-buying
stimulus program. Central-bank officials could also shed more light on their expectations
for interest-rate increases next year.

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12/12/21, 3:12 PM Buybacks Hit Record After Pulling Back in 2020 - WSJ

Microsoft has approved the repurchase of up to $60 billion of its stock. Its HoloLens headset.
PHOTO: THANASSIS STAVRAKIS/ASSOCIATED PRESS

S&P 500 buybacks plunged from nearly $199 billion in the first quarter of 2020 to just
under $89 billion in the second, as companies reeling from the onset of the pandemic
moved to conserve cash. Share repurchases increased in each following quarter,
approaching $199 billion again in the second quarter of 2021.

Repurchases can support stocks by reducing a company’s share count, boosting its per-
share profits. And they can boost investor sentiment by suggesting executives are
optimistic about their companies’ prospects and confident in their financial position.

S&P 500 stock buybacks

$200 billion

150

100

50

0
2016 '17 '18 '19 '20 '21

Note: 3Q 2021 is preliminary.

Source: S&P Dow Jones Indices

“It’s always comforting to have a management team come in and tell you how
undervalued they think their shares are,” said
Anne Wickland,
a portfolio manager at

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12/12/21, 3:12 PM Buybacks Hit Record After Pulling Back in 2020 - WSJ

Easterly Investment Partners. “It’s a vote of confidence in the longer-term outlook.” 

Her team bought shares of

Lockheed Martin Corp.
in the summer, in part because of the
defense company’s share-buyback program and dividend yield. Lockheed shares fell 12%
on Oct. 26 after the company reported lower-than-expected quarterly sales and revised
its full-year sales forecast lower. Ms. Wickland said she believes the shares are
undervalued and continues to like them.

Stock buybacks have come under fire from politicians who say companies should use cash
to invest in their businesses instead of supporting their share prices. The version of the $2
trillion education, healthcare and climate spending package that passed the House in
November would ​create a 1% tax on the net value of a company’s stock buybacks. 

SHARE YOUR THOUGHTS

What is your reaction to this latest streak of stock buybacks? Join the conversation below.

The Senate hasn’t voted yet, but the buyback tax has so far generated less corporate
opposition than the bill’s other tax increases. Strategists at BofA Global Research project
that the proposed tax would result in a 0.3% reduction to S&P 500 per-share earnings,
assuming that companies didn’t change the amount of stock they repurchase. 

Several investors said they don’t believe the tax would have much of an effect on
companies’ behavior if it became law. “The 1% tax on buybacks is so low that I don’t think
it will impact anything,” said
Olivier Sarfati,
head of equities at wealth-management firm
GenTrust.

Write to Karen Langley at karen.langley@wsj.com

Copyright © 2021 Dow Jones & Company, Inc. All Rights Reserved

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