S&P 500 Buybacks Fell 21% in Q2

NEW YORK — S&P Dow Jones Indices announced that S&P 500 stock buybacks, or share repurchases, totaled $127.5 billion in Q2 2016, a 21.0% decrease from the $161.4 billion reported in Q1 2016 and a 3.1% decrease from the $131.6 billion reported in Q2 2015.

Apple led all companies with $10.2 billion in buybacks of its stock in the second quarter.

For the 12-month period ending in June 2016, S&P 500 issues spent $585.4 billion on buybacks, up 5.8% from the $553.5 billionspent in the same period of 2015. The 12-month expenditure is the third-highest level for buybacks, behind the $589.4 billion for the period ending Q1 2016 and $589.1 billion for the period ending Q4 2007.

Key Takeaways:

  • The $127.5 billion spent in Q2 2016 represents a 21.0% decrease from Q1 2016 and a 3.1% decrease from Q2 2015.
  • For the 12-month period ending June 2016, S&P 500 issues increased their buyback expenditures by 5.8%, to $585.4 billion, up from $553.5 billion posted for the corresponding 2015 period, but down 0.7% from the 12-month record of$589.4 billion set in Q1 2016.
  • For the tenth consecutive quarter, more than 20% of the S&P 500’s constituents reduced their year-over-year diluted share count by at least 4%, therefore boosting their earnings-per-share (EPS) by at least 4%.
  • Total shareholder return, dividends plus buybacks, declined to $225.8 billion in Q2 2016, from the quarterly record of$258.1 billion in Q1 2016, though dividend payments rose 1.6%. The 12-month return was $974.8 billion, down a tick from the record of $975.0 billion for the 12-month period ending in March 2016.
  • Issues reducing their share count this quarter decreased to 275, from 324 in Q1 2016 and 307 in Q2 2015.
  • Significant share count changes (generally considered 1% or greater for the quarter) remained strong, but declined: 106 issues reduced in Q2 2016, down from 147 in Q1 2016. There were 46 share count increases in Q2 2016, up from 33 in Q1 2016.
  • 134 issues reduced their year-over-year share count by at least 4%, a second consecutive decrease after five straight quarters of gains.

“The 21% decline in buybacks appears to show repurchases were pulled back to conform to budgeted expenditures,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.

“Buybacks were concentrated, as the top 20 issues accounted for 46.6% of the total Q2 2016 expenditures. Additionally, the number of issues conducting significant share-count reductions (purchases less issuance) declined.

“The ability of companies to increase buybacks remains high, as cash is at a record level and money remains cheap and easy. However, the cessation of momentum after Q1 2016 may indicate that companies have not increased planned buybacks and rearranged expenditures to support their shares through the end of the fiscal period. Third quarter prices are running 2.2% ahead of the second quarter (and 6.7% ahead of Q3 2015); increased expenditures may be needed to cover the higher share prices or risk diluting EPS.”

Sector Analysis:

Information Technology easily continued its buybacks dominance, as its percentage of Q2 2016 S&P 500 buybacks increased to 23.6% of all S&P 500 buybacks ($30.1 billion), from 21.5% ($34.7 billion) in Q1 2016.

Energy continued to decline, falling to 1.1% ($1.4 billion) of all buybacks for Q2 2016, from 1.3% ($2.1 billion) in Q1 2016.

Health Care decreased its expenditures by 51.1% ($15.0 billion) after increasing 86.1% ($30.6 billion) in Q1 2016, accounting for 11.7% of all buybacks and reverting closer to the sector’s historical buyback levels.

Also notable was Consumer Staples, which posted a 0.1% gain in expenditures to $11.7 billion, representing 15.9% of all expenditures, amid the sector’s 21.0% decline for the quarter.

Issues:

Apple (AAPL) spent the most on buybacks in Q2 2016 at $10.2 billion, the ninth-largest quarterly share buyback by an S&P 500 constituent in history. Apple also holds the top 3 and fifth-largest quarterly repurchase; International Business Machines(IBM) holds the fourth largest.

General Electric (GE) was second, with $8.0 billion, up from its prior quarter’s $6.3 billion.

AbbVie (ABBV) came in third with $3.8 billion, up from its prior quarter’s $0.4 billion.

Microsoft (MSFT) and McDonald’s (MCD) rounded out the top five, spending $3.7 billion and $3.4 billion, respectively.

Exxon Mobil (XOM) ranked 292, down from 58 in Q1 2016, with only minor buybacks ($1 million).

Historical S&P 500 buyback data is available at: www.spdji.com/indices/equity/sp-500.