Corporate America Is Buying Back Stocks at Record-Setting Pace

Corporate America Is Buying Back Stocks at Record-Setting Pace

If you don’t follow the stock market closely then you may have missed an ongoing trend this year. Corporate America is buying back stocks at a massive rate. In fact, these buybacks are happening at a record-setting pace. So how big are the numbers, exactly? They’re massive. According to Howard Silverblatt of S&P Dow Jones Indices, S&P companies have poured at least $178 billion into buying back stocks during the first three months of the year, alone.

Most Ever Spent on Buybacks in a Quarter
That represents an increase of 34 percent over the same period last year. Italso sets a new all time recordover the$172 billion set back in 2007. So which companies have been the most active? Apple ended up at the top of the list, by rewarding its shareholders with $22.8 billion in buybacks. That is a huge number. In fact, it’s the most that any company has ever purchased in buybacks in any one quarter in history.

Tax Cut and Jobs Act Started the Process
So what’s behind the huge buyback barrage? It started as soon as the new Tax Cut and Jobs Act went into effect at the beginning of the year. Thanks to the law, the new corporate tax rate dropped from 35 percent all the way down to 21 percent. The new law also gave companies a nice tax break on the amount they would owe when they bring back foreign profits to the U.S. To be clear, profits were also already creeping up, with the improving economy.

Employees Seeing Several Benefits
Therefore, these two tax breaks have combined to increase company profits, much of which has been returned to shareholders. Additionally, according to the White House, more than 5.5 million employees have already seen pay raises, tax cut bonuses, or 401K increases.

Not Much Business Spending
On the other hand the tax cuts were also supposed to encourage companies to increase spending on infrastructure, equipment, factories and other things. However, so far, increased business spending has yet to happen. The idea is that the increase spending would help create jobs and boost the economy. But many economists are not surprised by the lack of business expenditures to this point. It’s common for companies to spend their windfall on Wall Street instead of on Main Street. These economists say that just because companies have more cash you shouldn’t expect them to reinvest it back into their business.

Buybacks Will Likely Continue
Time will tell if some of these gains will eventually start to go towards expanding businesses and creating more jobs. But for now, current employees and shareholders are reaping the benefits of the extra corporate profits created by the Tax Cut and Jobs Act. In fact, some analysts predict that the buybacks, plus dividends, which make up total shareholder payouts, could reach more than $1 trillion for the last 12 months. That would be the first time in history that would have occurred.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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