“U.S. companies are buying back huge amounts of their own stock, and the ones executing the biggest buybacks are seeing their share prices rewarded handsomely.
Companies in the Standard & Poor’s 500 Index purchased $128.2 billion of their own stock in the third quarter, according to S&P Dow Jones Indices, The Wall Street Journal reports. That represents the highest level since the fourth quarter of 2007.
As for stock performance, the S&P 500 Buyback Index, which includes the 100 stocks with the highest buyback ratios, has soared 45 percent so far this year, outperforming the S&P 500’s 28 percent gain.
The buyback ratio consists of the total cash paid for common stock during the past year divided by the market capitalization of the common stock.
To be sure, not all investors view the buybacks as positive. Cash devoted to buybacks is cash that isn’t devoted to research, development and other corporate operations…..”
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