Buyback Wednesdays – Over $1 Trillion in Buybacks Announced This Year

Welcome to edition 35 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week.

Buyback activity dropped so sharply last week due to the Thanksgiving holiday and fewer companies reporting earnings that instead of focusing on a specific company announcing a large buyback, we decided to shift gears and write more broadly about buybacks. Companies have increased their allocation to share repurchases in recent years because it is a tax efficient way to return capital to shareholders and when done correctly, can significantly enhance shareholder returns.

As mentioned in our first edition of Buyback Wednesdays, we wrote the following in a premium blog post more than four years ago when we first started tracking buybacks on Inside Arbitrage.

There has been a lot of academic research over the years that shows the superior performance of companies buying back their own stock. Recent research into the “uber cannibals”, defined as the top 5 companies buying back their own shares, by Mohnish Pabrai as discussed in the article Move Over Small Dogs Of The Dow, Here Come The Uber Cannibals, shows that the uber cannibals have outperformed the S&P 500 index by 6.3% annualized over a 26 year period. Not all buybacks are in the best interest of investors and we have all heard of companies like Citigroup (C) using capital to buy back shares right before the financial crisis. The company was subsequently forced to receive the biggest bailout of any American bank. On the other hand, we have also seen the masterful use of stock buybacks by some CEOs to generate outsized returns for their investors as discussed in the book The Outsiders by William Thorndike.

Cliff Asness of AQR has been a huge proponent of buybacks and in his 2018 article in the Journal of Portfolio Management titled Buyback Derangement Syndrome, he dispels several myths about buybacks. As he states in this CNBC interview (h/t Tobias Carlisle of The Acquirer’s Multiple), negativity around buybacks makes for good sound bites but is not grounded in sound reason.

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