Record share buybacks in the United States

Share buybacks by companies are sometimes considered controversial. Donald Trump's tax policy, by encouraging the return home of treasures hidden abroad by large American companies, has rekindled the debate. With that being said, in the United States, the tradition is well established. In particular because this practice makes it possible to improve shareholders' remuneration without making them bear the tax burden of the dividend, or having to smooth the evolution of earnings per share.

In a recent article on dividends, we reported on a study by DZ Bank, which explained that IBM had bought back 60% of its capital over the past 25 years, a record among large-cap American companies. Less focused on the issue, however, Coca-Cola cancelled 27% of its shares over the same period (and Visa 25%). A trend that should not slow down. The third quarter of 2018 saw a record $204 billion of buybacks in the United States on the S&P 500 Broad Index. Over the past five years, share repurchases have totalled $2,890 billion on the index.

First Trust has published an interesting summary table of repurchases by major sectors. It shows that technology stocks are the most prolific: almost $800 billion in buybacks over the last five years, ahead of financials ($519 billion) and discretionary consumption ($426 billion). Not surprisingly, at the other end of the scale are Utilities and Real Estate, which have hardly bought any shares, as well as communication services (telecoms and media, according to the new GICS classification).