Editors' pick: Originally published Monday, Feb. 8.
Investors are fearing a recession, but the commitment by corporate managements to share buybacks is "a bullish signal" in the markets, according to Goldman Sachs.
Roughly 75% of S&P 500 (SPY) companies have reported their fourth-quarter earnings to date. "Companies have generally expressed a continued commitment to buybacks, holding the view that market weakness is a reason to increase, rather than taper, their repurchases," Goldman Sachs analyst David Kostin wrote in a Feb. 5 note to clients.
United Technologies (UTX) , for example, said in its fourth-quarter earnings call that "'the best M&A opportunity we see right now is UTX stock,' and expressed a desire to continue buybacks 'as long as we feel there's a significant discount between the intrinsic value of UTC and the share price,'" Kostin wrote. "We believe buybacks may account for nearly 20% of recent trading volume."
There have been a "flood of new" repurchase authorizations to boost the already ample store of "dry powder" for buybacks in 2016, the note said. S&P 500 buyback authorizations have exceeded $60 billion this year -- putting "early 2016 on pace to be one of the fastest starts on record," it said.
For instance, Gilead Sciences (GILD) authorized $12 billion in buybacks and 3M (MMM) authorized $10 billion in buybacks are just two examples of companies boosting their repurchase activity this year. As well, General Electric (GE) and AIG (AIG) have announced intentions to return cash to investors through a combination of dividends and share repurchases, targeting $26 billion and $25 billion, respectively, according to the Goldman note, while other companies like Apple (AAPL) still have plenty of capacity under exiting buyback programs.
To be sure, "corporate foresight is far from perfect," Kostin wrote, noting that 2007 was the largest year on record for share buybacks, but it was just before the financial crisis.
Goldman's basket of S&P 500 stocks with the largest buybacks and dividends in the trailing four quarters has "outperformed the S&P 500 during February in 19 of the last 21 years." (To date, the basket is lagging the S&P 500 by 145 basis points.) The median trailing 12-month total yield for S&P 500 stocks is 4.9%, while Goldman's basket had a median yield of 10.6%.
Here are the 12 consumer stocks with the biggest cash returns to shareholders in the past year, according to Goldman. We've paired the list with commentary from Jim Cramer, if the stock is owned by his Action Alerts PLUS Charitable Trust Portfolio.
Note: Buyback and dividend yields are currently based on the four calendar quarters ending September 2015.