Record levels of share buybacks, reaching $1.3 trillion last year among the world's 1,200 biggest public companies, are drawing criticism from prominent investors. This figure is triple the amount from a decade ago and nearly matches the total dividends paid to shareholders, which have grown by only 54% over the same period. The trend continued this year with companies like HSBC, Apple, Airbnb, and Compass announcing new share purchases. The oil sector led buybacks last year, repurchasing $135 billion in stock, four times more than in 2021.
While buybacks can return excess cash and boost share prices, their scale is attracting regulatory attention. US President Joe Biden implemented a 1% tax on Wall Street buybacks in January and has proposed quadrupling it. The SEC recently approved a rule requiring public companies to disclose more information on buybacks, including the number purchased and average price paid. Some analysts, like Euan Munro of Newton Investment Management, believe buybacks can be used to manipulate earnings per share to meet management incentive targets at the expense of long-term investments.
Critics argue that buybacks primarily benefit traders, hedge funds, and senior executives, rather than long-term holders who benefit more from dividends. Daniel Peris of Federated Hermes called buybacks an "environmental hazard," and Leigh Himsworth of Fidelity noted that shareholders often don't feel rewarded. Abrie Pretorius of Ninety One stated that buybacks only create value when shares are cheap and there are no better uses for the cash, often destroying value while helping optical earnings per share growth. An Invesco fund tracking companies with large buybacks has underperformed the US market over the past decade.
Historically more common in the US, buybacks are increasing globally. Between 2012 and 2022, repurchases by major UK-listed companies more than tripled to $70 billion, US-listed companies increased from $333 billion to $932 billion, and European share purchases more than doubled to $148 billion. However, Goldman Sachs forecasts a 15% drop in buyback spending by US S&P 500 companies this year to $808 billion, with dividends expected to rise 5% to $628 billion, due to weaker earnings growth, increased policy uncertainty, and high starting valuations. Despite this, Goldman expects buybacks to rise again next year. Sharp declines in cash holdings and rising interest rates are limiting companies' ability to fund buybacks, while Biden's tax is not expected to have a significant impact.
The increase in buybacks and dividends has contributed to growing inequality, with shareholder payments outpacing worker wage growth. According to Oxfam, from 2020 to 2023, dividend payments grew 14 times faster than employee salaries across 31 countries. Over this period, dividend payouts soared by 45%, totaling $195 billion, while average worker wages increased by only 3.3%. The top 1% now accounts for 43% of global financial assets, with the ultra-rich earning an average of $9,000 in dividends in 2023, an amount that would take an average worker about eight months to earn.
