S&P500 Buyback Programs Reach New Heights
If you have been sitting on the fence about wether or not to open up or even expand your exposure to US equity markets now may represent the perfect time to dive right in as S&P500 companies are on track to buyback a record breaking $650 billion dollars’ worth of stock. Based on the approximate $23 trillion-dollar market cap of the S&P500 this equates to an additional “buyback yield” of 2.82% which goes along with the 1.9% dividend yield already being offer up. Together then between the buyback and dividend yield investors can expect a return of 4.72% before even taking into account any potential price gains that could be had from growing corporate earnings, improving market sentiment or strong economic data.
Looking at the US stock market from this angle then it’s easy to see why even a 3% 10-year treasury yield might not be enough to lure investors towards fixed interest assets. Indeed, speaking to CNBC earlier in the year legendary investor Warren Buffet said he would chose equities over long term bonds “in a minute” given the current state of investment markets. Buffet has long touted his affinity for share buy back programs and on several occasions stated that a big part of the reason that Apple is now Berkshire Hathaway’s largest position is because of the companies huge $100 billion dollar Buy Back program.
However, as you might imagine Buffet is not alone in his approval of buy back programs with several piece of empirical evidence pointing towards buy back schemes as being a key ingredient in out performing the market. In fact, a Harvard business review journal published in September last year found that firms engaged in buy back programs outperformed their peers by 12.1% over the next four years. The journal article explained the outperformance as a result of the fact that buyback programs essentially ensure that surplus capital is used effectively and not wasted on sub optimal investment opportunities.
If you are an individual or SMSF investor and would like to gain exposure to the tremendous scale of stock buy backs occurring in the US, then why not get in touch with one of our investment professionals to discuss our US equity strategies. Send us an email at firstname.lastname@example.org
Sources – HBR, Barrons
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