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It’s a Bullish Market for Stock Buybacks and Dividends

Mark J. Smith, CFP®, CPA/PFS, CIMA®
June 6, 2018

When it comes to the stock market, every investor hopes for a bullish market.  And, the U.S. is seeing its ninth year in the bull market so far.  If we make it to August with this trend, the S&P 500 will see its longest market run in history.  

Given the strength of the economy, there is a tremendous trend in corporate buybacks right now, creating an opportunity for investors. A stock buyback is when a company buys back its own shares from the broader marketplace, which support stock prices by reducing share counts and boosting earnings per share. When companies essentially reinvest in themselves by repurchasing their own stocks in the open market, they reduce the share count – ultimately giving its investors and shareholders extra cash.  

June6Chart

According to a recent article published in Barron’s, this tidal wave of share repurchases and buybacks is expected to continue through 2018. Goldman Sachs estimates that Standard & Poor’s 500 companies are currently on track to announce $650 billion worth of buybacks this year – which is significant given that the previous record was $589 billion set in 2007.  

An example of this is Apple.  Analysts expect Apple to buy back $70 billion to $80 billion of stock annually in the next few years. That translates into a buyback yield of 7% to 8%.

And, for investors looking for another aggressive buyback activity, the banking sector is something to definitely take note of again as well.  Barclays analyst Jason Goldberg recently said that it’s expected that the banks should return nearly all their net income to shareholders in buybacks and dividends in the next year. These banks are expected to announce their dividend and buyback plans at the end of June, after the Federal Reserve completes its annual stress tests and evaluations.

According to Barron’s, Citigroup  is expected to buy back roughly 10% of its shares, and Bank of America and Wells Fargo are expected to buyback 7% each. This is a positive change that the market is seeing given that when the financial crisis hit, banks transitioned from good total-return stock to poor returns.  This should change back to positive investments moving forward as banks regain their status with stock buyback programs.

There is no doubt that buybacks bring excellent value to its investors, and history and trends have demonstrated the bullish value of repurchases.  In the case of a buyback, companies are concentrating its shareholder value rather than diluting it, and a diversified portfolio of stocks conducting buybacks has been shown to reduce volatility and increase returns in the long term. 

It’s not too late to look in to companies that are offering buyback programs – such as Apple, JPMorgan, Citigroup and others – to grow your portfolios and capitalize on these opportunities.  If you’re interested in M.J. Smith & Associates reviewing your portfolio and/or discussing options to help you understand the impact of your investments, please contact us today and we’d be happy to talk with you.

 

 

This information does not purport to be a complete description of the developments referred to in this material. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.  The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a  recommendation. Any opinions are those of Mark Smith and not necessarily those of Raymond James. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Investing involves risk and investors may incur a profit or a loss. 

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