ByeBack

Businesses are buying back their shares by the billions before a new tax hits buyback boosts

Thursday, September 15, 2022 by Robinhood Snacks |

It’s BB szn… Big businesses are buying back shares by the boatload. This past week, Comcast, Johnson & Johnson, T-Mobile, UBS, and Starbucks all announced plans to buy back billions worth of their own shares. Refresher: Some companies regularly buy back shares to boost prices and reward investors (think: fewer available shares + similar earnings = higher earnings per share). Two reasons for the buyback bonanza:

  • Bargain prices: Because stocks have plunged this year, it’s (relatively) cheaper for companies to splurge on their stock.
  • Extra fees incoming: President Biden’s Inflation Reduction Act will impose a 1% tax on buybacks from large corporations beginning next year.

Buyback brouhaha… Buybacks have boomed in recent years. In the first quarter of this year, S&P 500 buybacks hit a record $281B (though the index itself had its worst performance in years). Biden’s 1% tax is projected to raise $74B in the next decade, but critics say the tax will reduce investment and innovation and hurt investors. Over the past 20 years, big buybackers have outperformed others by 60%.

THE TAKEAWAY

The big buyback era probably isn’t ending… because the benefits still outweigh the costs. Experts say buybacks are unlikely to disappear, since a tax would have to be 10% to persuade companies to ditch buybacks altogether. Apple, Alphabet, Meta, Microsoft, and Bank of America — the “buyback monsters” — accounted for 25% of all buybacks in the past year, and they’re likely to keep splurging on themselves.