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Corporate Stock Buybacks at a Record Pace for 2022

Share repurchases can boost the stocks of companies with plans to execute them. Some of those stocks have outperformed.
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With stock prices tumbling this year, companies are looking for ways to boost their share prices. One strategy that often lifts a company’s stock is share buybacks.

That’s because buybacks reduce a company's shares outstanding, pushing its profit-per-share figure higher. Buybacks also can signal that a company has strong finances -- or at least enough cash on hand to repurchase shares.

So perhaps it’s no great surprise that companies are ratcheting up buybacks this year, after a record total in 2021.

 A Record Pace for '22 Buybacks

In the first two months of this year, S&P 500 companies have disclosed authorizations to buy back $238 billion in stock, a record pace for the period, according to Goldman Sachs.

It projects another all-time high for the full year -- $1 trillion, up 12% from 2021. Many companies have financial ammunition for buybacks, having borrowed a lot of money at low interest rates during the pandemic.

“Buybacks are back,” Josh Jamner, investment-strategy analyst at ClearBridge Investments, told Bloomberg. “In this period of market volatility, companies do have dry powder that they should be able to deploy.”

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The companies that have disclosed buyback authorizations this year include Union Pacific  (UNP)  with $25 billion; Amazon  (AMZN) , PepsiCo  (PEP) , and industrial-gas company Linde  (LIN)  with $10 billion; and Colgate-Palmolive  (CL)  and Best Buy  (BBY)  with $5 billion, The Wall Street Journal reports.

The buybacks appear to be helping the stocks of the companies implementing them, at least a little. 

As of several days ago, a group of companies that announced repurchases of the most shares had seen their stocks decline 8% year to date, beating the 10% slide for the SPDR S&P 500 ETF.

Dissenting Opinion About Stock Buybacks

Not everyone is happy with stock buybacks. Critics say the companies doing them are using money that could better be deployed by investing in operations. That includes capital investment, research and development, job creation and employee wages.

Opponents also say that buybacks artificially inflate companies’ stock prices, as their total earnings aren’t affected.

“It can make sense for a company to leverage retained earnings with debt to finance investment in productive capabilities that may eventually yield product revenues and corporate profits,” according to a 2020 article in the Harvard Business Review.

“Taking on debt to finance buybacks, however, is bad management, given that no revenue-generating investments are made that can allow the company to pay off the debt.”