S&P 500 giants keep buying back shares: Here's what it means

According to the latest Bank of America Fund Manager Survey, a survey involving 226 panelists with $572bn assets under management, investor desire for companies to prioritize returning cash to shareholders via share buybacks, dividends, and M&A has reached its highest level since July 2015.

In Q4 2023, ten big names of the S&P 500, including tech heavyweights Alphabet (GOOGL), RTX (RTX), and Meta Platforms (META), shelled out a whopping $91 billion on share buybacks. Throughout 2023, the S&P 500 companies dropped $795.1 billion on buybacks, a dip from the $923 billion in 2022.

The big idea behind these buybacks? Companies aim to balance out share dilution from stock awards to executives and staff. This tactic gradually reduces the number of shares floating around. Even with a new 1% tax on buybacks introduced by Congress in 2023, the final quarter saw an 18% uptick in buyback spending from the previous quarter.

Yet, splurging on buybacks doesn't always translate to a stock price surge. Apple (AAPL), the top spender at $22.7 billion in Q4, witnessed a more than 9% drop in its share price this year. Alphabet, despite being the second-biggest spender with $16.2 billion, only saw its shares creep up by less than 6%, trailing the S&P 500's performance.

On the flip side, companies like Meta Platforms, after dropping $8.2 billion on buybacks, saw their share price skyrocket by over 40% this year. RTX, after a $10.3 billion buyback spree, enjoyed an 11% share price bump. It looks like, for the most part, hefty buybacks do reward shareholders.

While there's no one-size-fits-all outcome from share buybacks, the overarching motive for S&P 500 firms is to mitigate share dilution from employee stock awards. Despite the 2023 buyback tax, the trend persists, suggesting that these moves are less about short-term share price boosts and more about managing share counts. 

With the majority of the top ten buyback performers outdoing the S&P 500 this year, expect this trend to continue as long as these companies keep raking in solid financial results.