According to the Janus Henderson Global Dividend Index, global share buybacks surged 22 per cent to a record $1.31 trillion in 2022.
Company results published during the first quarter of 2023 showed that the top 1,200 companies globally bought back a record $1.31 trillion of their shares, almost equal to the $1.39 trillion the same firms paid in dividends during the year.
The largest contributor to this growth was the oil sector, in which companies bought back $135 billion of their own shares, or more than four times the amount as in 2021. North America and UK companies made up the bulk of this number, with European companies also contributing.
Ben Lofthouse, head of global equity income at Janus Henderson, said: “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.
“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 growth in buybacks is part of a longer-term trend, with buyback value increasing 182 per cent since 2012, compared with 54 per cent for dividends over the same time period.
Janus Henderson said the growth has also been seen across almost every country and almost every sector. The biggest jump came on the back of US technology companies ramping up buyback programs in 2018.
In 2012, buybacks were equal to just 52 per cent of dividends, ranging from 3 per cent in emerging markets to 102 per cent in North America. In 2022, the global figure now sits at 94 per cent, ranging from 18 per cent in emerging markets to 158 per cent in North America.
Janus Henderson said the figures are highly concentrated in a few companies, such as Apple. The technology company is one of the world’s largest buyers of its own shares, worth $89 billion for the 2022 financial year, accounting for almost 7 per cent of the global total.
The 10 largest buyers accounted for almost a quarter of the global total and Shell, which is from the UK, was outside the US.
“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?” Mr Lofthouse said.
“When companies could essentially access finance at almost zero cost, there was a huge incentive to issue debt and buyback 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.”
