In 2022, share buybacks escalated to a new high, nearly on par with dividends, as indicated in a special supplement of the Janus Henderson Global Dividend Index.
Details disclosed in Q1 2023 by companies demonstrated the massive scale of share repurchases worldwide in 2022.
The largest 1,200 corporations globally repurchased a record US$1.31 trillion of their own shares, nearly matching the US$1.39 trillion in dividends they disbursed that year.
Impressively, this total marked a 22% increase from 2021, setting a new record.
The most significant growth in 2022 was in the oil industry, with companies repurchasing US$135 billion of their shares, a figure more than quadruple that of 2021. The majority of these buybacks in the oil sector occurred in North America, the UK, and to a lesser extent, Europe.
The rapid growth in buybacks is not a one-year phenomenon. Remarkably, buybacks have seen a nearly threefold increase in value since 2012, marking a rise of 182%, which significantly surpasses the 54% rise in dividends over the same decade.
North America leads the pack
Almost every region, nation, and industry has witnessed robust growth in share buybacks. The most significant surge occurred in 2018, predominantly driven by U.S. tech companies escalating their share repurchase programs.
The consequence of this rapid growth is a significant increase in the importance of share buybacks for investors. In 2012, buybacks worldwide amounted to merely 52% of dividends, with a range from a low of 3% in emerging markets to a high of 102% in North America. By 2022, this figure globally leaped to 94%, with a range from 18% in emerging markets to an astounding 158% in North America.
Divergence across sectors
The divergence across sectors is even more drastic. For instance, in the media sector, which encompasses Meta, the parent company of Facebook, and Alphabet, the owner of Google, neither firm pays dividends, but both are substantial purchasers of their own shares. In 2022, the sector's global share buyback value was eight times larger than the dividends paid.
On the other hand, in the high dividend-yielding utilities sector, dividends were eight times larger than buybacks. When considering both buybacks and dividends together, referred to as total shareholder yield, these discrepancies diminish considerably.
Apple spent US$89 billion on buybacks
The data is highly skewed towards a handful of companies. Apple, being one of the largest repurchasers of its own shares, spent a staggering US$89 billion for the fiscal year 2022, accounting for almost 7% of the global total.
The top ten buyers made up nearly a quarter of the global total, with only one of these, the UK's Shell, being based outside the U.S. Nestle was among the leading share repurchasers in Europe last year.
The past may not be a guide to the future
Janus Henderson’s head of global equity income Ben Lofthouse said that the rapid growth in buybacks in the last three years reflects a strong profit and free cash flow performance and a willingness to reward shareholders without setting unintended expectations for dividends.
He added: “Buybacks cannot always be relied on to enhance shareholder returns.
“Their discretionary nature makes them more volatile - as evidenced in 2020’s Covid disruption when they fell dramatically.
“In addition, they don’t always create shareholder value and some shareholders who rely on an income stream from their investments often prefer dividends.
“The global cost of capital is now significantly higher than in the last few years.
“The big question is what this will do to share buybacks in the months and years ahead.
“When companies could essentially access finance at almost zero cost, there was a huge incentive to issue debt and buy back shares as this added immense value.
“For companies generating very large amounts of cash, like Apple or Alphabet, this is not a major factor.
“For others, especially in the US, that have used borrowing to fund buybacks, the calculations will now be much more finely balanced.”