By Jamie McGeever ORLANDO, Florida (Reuters) - To buy back, or not to buy back. The highest U.S. interest rates in over 20 years coupled with Wall ...
The highest U.S. interest rates in over 20 years coupled with Wall Street's remarkable resilience has brought an old boardroom dilemma into sharp focus: are share buybacks worth it?
This metric as a share of market cap is known as the 'buyback yield'. The average of roughly 400 companies in the main index that have one is around 2.44% and the median is 1.73%, calculates Joe Kleven at YCharts. U.S. stocks are expensive. Relative to bonds, they are the most expensive in almost 20 years, as shown by the 'equity risk premium' that measures prospective bond yields and equity returns. Nominally, the S&P 500 last week hit its highest level of the year, less than 5% from the January 2022 record high.
These eye-watering sums beg the question whether the money could not be better spent on developing products, staff or buying and expanding new business. The study -"Share Repurchases on Trial: Large-Sample Evidence on Share Price Performance, Executive Compensation, and Corporate Investment" - found that, at an aggregate level, repurchasing shares"neither creates nor destroys much wealth ... they are not associated with excessive CEO pay or underinvestment."
S&P Global's Buyback Index is an equally weighted index that measures the performance of the top 100 stocks in the S&P 500 with the highest buyback ratios.
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