Share repurchases by companies, also known as buybacks, have become the preferred method for S&P 500 corporations to reward their shareholders. Goldman Sachs expects S&P 500 companies to repurchase $1.1 trillion of their own stock next year, up from an expected $925 billion in 2024.
Apple has been the most prominent reacquirer of its own stock, repurchasing more than $800 billion of its shares since 2012. In May 2024, Apple authorized another $110 billion in share purchases. In the table below, we show a summary of Apple’s results for the 12-months ending June 2018 and 2024. Apple grew its revenue and earnings, but the growth rate has slowed, as their product innovation has trailed off. However, thanks to the shrinking number of shares outstanding, Apple’s earnings per share jumped by 141% over the last 6 years, even though revenue only increased by 51%.
After the brief equity market sell-off in late July/early August, stocks quickly stabilized and moved back to near record high levels to end August. The Federal Reserve’s assurances that interest rate cuts were on the agenda for their September 18th meeting and beyond soothed equity investor sentiment. Stock buybacks are one of the most important transmission mechanisms by which lower rates benefit stocks. Lower interest rates cut borrowing costs, which allows companies to more economically finance stock purchases. Prior to Covid, interest rates were low enough that many S&P 500 companies’ cost to borrow were below their earnings yield. Under that scenario, borrowing to fund buybacks provides an immediate boost to a company’s earnings per share. The equity market rebound, and stock prices close to record high levels, implies some expectation that companies could see more favorable borrowing conditions in the future.