Companies spend billions repurchasing shares because less stock outstanding helps make their profits appear stronger by boosting per-share earnings—a gauge investors typically use to justify a company’s stock price. Some investors counter that buybacks don’t actually add to a company’s net profit, and the capital could be used on other things.
Apple Inc., Oracle Corp. and Cisco Systems Inc. were the biggest buyers of their own stock in 2018, repurchasing a total of $126 billion of shares, according to S&P Dow Jones Indices. In April, the iPhone maker said it would add $75 billion to its buyback program.
“We’re in the fortunate position of generating more cash than we need to run our business and invest confidently in our future,” Apple Chief Executive Tim Cook said during the company’s earnings call last month.
Some analysts say companies’ willingness to buy back shares has been among the factors driving the latest stages of the 10-year bull market. And companies repurchasing shares during a downturn could help buoy markets... Some analysts are concerned that technology companies accounted for too big a slice of the buyback pie. Last year, the top 20 companies repurchasing stock in the S&P 500—many of which were tech firms—accounted for 42% of all buybacks, compared with a 32% share in 2017, data from S&P Dow Jones Indices showed.
“The presumption is that 2020 will be a good year for buybacks, but that’s based on expectations that the economy remains strong and we don’t have a trade war,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. “Even though next year is supposed to be a great year for earnings and cash flow, we’re not there yet.”
Washington presents one potential hurdle for companies repurchasing stock. Democratic presidential candidates have signaled that they want to restrict how much stock U.S. companies can buy back, arguing that buybacks enrich shareholders at the expense of workers.