The massive de-equitization of corporates in the past year is beginning to rival the heady days of 2007, when massive stock buybacks, leveraged recaps and leveraged buyouts helped to set the stage for the financial crisis. LBOs today are more modest in size, but buybacks are rivaling the pre-crisis levels and “creeping recaps” through dividend increases are growing in popularity.
Third-quarter buybacks by S&P 500 companies were up 23.6 percent year over year, and 8.6 percent since the second quarter, at $128.2 billion, according to S&P Dow Jones Indices. For the 12-month period ending September 2013, stock buybacks increased 15 percent to $445.3 billion. The high mark was reached in 2007, when companies spent $589.1bn over the 12-month period.
Among the biggest buyers of their own shares in the third quarter were Apple and Pfizer. Each bought more than $3bn of stock in the three months ended Sept. 30. Apple bought back $4.9bn and Pfizer bought $3.8bn.
Buybacks can be seen as good for shareholders and companies and also might portend a brighter outlook. But some experts, including treasurers, see the buybacks as an unimaginative way of deploying excess cash and a way of just giving shareholders less to complain about; also, experts see it as undermining long-term growth of a company as the money that might have gone toward innovation is now going back to shareholders. And Bill Gross recently tweeted that it was the main factor fueling the current stock market boom.
Stocks have their own QE: corp buybacks” at $500 billion a year. They are a main reason stocks go up. When do THEY taper?” Pimco quoted Mr. Gross in a tweet.