Share buybacks have almost trebled in value in the past 10 years, coming close to eclipsing dividends, according to new research from Janus Henderson.
The world’s top 1,200 companies bought back $1.31trn of their shares last year, an increase of 182% from a decade ago, and almost equal to the $1.39trn the same firms paid in dividends during the same year.
Buybacks have also increased at a much faster pace than dividends; in 2012, they were equal to just 52% of dividends, whereas in 2022 this figure had jumped to 94%.
Every region and almost every country and sector has increased its use of buybacks in the past decade, according to Janus Henderson’s research, although some have done so much faster than others.
For example, by far the biggest contributor to growth in 2022 came from the oil sector in which companies bought back $135bn of their own shares, more than four times as much as the prior year.
Buybacks have risen over the past decade on the back of strong corporate cash flows, cheap debt and a favourable tax regime. Last year’s figures were also spurred by the introduction of a new excise tax on buybacks, which kicks in this year.
To their supporters, buybacks are a useful means of returning cash to shareholders, particularly when a company’s stock price is undervalued, whereas critics say they often have a self-serving purpose since executives typically receive bonuses for achievements that include steadily-rising earnings per share, something that buybacks boost.