Buyback to the future: pre-pandemic peak in sight

Buyback to the future: pre-pandemic peak in sight
Buyback to the future: pre-pandemic peak in sight   -   Copyright  (c) Copyright Thomson Reuters 2021. Click For Restrictions - https://agency.reuters.com/en/copyright.html   -  
By Reuters

<p><body> <p>By Thyagaraju Adinarayan and Sujata Rao</p> <p><span class="caps">LONDON</span> (Reuters) – Trillions of dollars stashed by U.S. and European companies during the coronavirus pandemic are starting to flow to shareholders, largely via buybacks, after a 2020 drought.</p> <p>Buyback announcements came thick and fast with first-quarter results, with multi-billion dollar programmes from Apple and Alphabet stealing the limelight.</p> <p>Analysts note a buyback rebound in Europe too, ranging from Maersk and Unilever to Carrefour, which is planning its first in a decade.</p> <p>Some $360 billion in buybacks were announced in the first four months of 2021, versus $190 billion in the same year-ago period, <span class="caps">JPM</span>organ strategist Nikolaos Panigirtzoglou said. </p> <p>U.S. buybacks accounted for $300 billion, Panigirtzoglou said, up from $130 billion a year ago. </p> <p>“We are seeing buyback activity almost doubling relative to 2020. Annualising that, we get a full-year figure of $900 million for the United States which is what we saw in 2019.”</p> <p>The announcements could prove a key source of support for markets, by decreasing the number of a shares outstanding, buybacks boost earnings per share and drive down the price-to-earnings ratio, a valuation measure. </p> <p>The S&P 500 buyback index is up 22% year-to-date, trumping the main benchmark’s 12% gain.</p> <p>Analysts attribute the buyback rebound to corporate cashpiles that stem from last year’s record borrowing and cuts to shareholder rewards. Cumulative holdings of cash and cash equivalents rose by roughly $3 trillion at S&P 500 and <span class="caps">STOXX</span> 600 companies, compared to 2019, Refinitiv data shows.</p> <p>Some banks say European firms, known to favour dividends for returning cash to investors, may also shift to buybacks which are widely credited for driving U.S. equity outperformance.</p> <p>“A step change in buyback activity would likely encourage U.S. and global investors to re-engage with Europe on the grounds of greater corporate focus on perceived shareholder-friendly activity,” Morgan Stanley’s Ross MacDonald wrote.</p> <p>Societe Generale analysts predict European share buybacks at 150 billion euros ($182 billion) in 2022 and 190 billion euros the year after. In 2019, buybacks totalled roughly $100 billion.</p> <p><span class="caps">JPM</span>organ’s Panigirtzoglou does not, however, expect buybacks to breach the 2018 global record of $1.2 trillion, unless the coming months bring a market correction. Selloffs in 2015 and 2018 prompted companies to snap up newly cheap shares, he noted.</p> <p>Buybacks generally recover quicker than dividends after a crisis. But while Refinitiv I/B/E/S data shows U.S. dividends fully recovering over the coming year, European payouts are expected at $276 billion, still $40 billion off pre-<span class="caps">COVID</span> peaks.</p> <p>($1 = 0.8235 euros)</p> <p/> <p> (Reporting by Thyagaraju Adinarayan and Sujata Rao; Editing by Alexander Smith)</p> </body></p>