Many companies have been putting excess cash to use by buying back shares; for example, AAPL, F and XOM have been large buyers. The dollar amount of share repurchase plans has been increasing over the past few years as well. Bloomberg reports that S&P 500 companies spent $565 billion on buybacks in 2014 compared to $478 billion in 2013.
It's possible to gain exposure to companies with large repurchasing programs by buying ETFs that consist of corporations executing large buy backs. For example, the PowerShares Buyback Achievers ETF (PKW) tracks the Nasdaq U.S. Buyback Achievers Index. More about buybacks in the following article.
How The Market's Biggest Buyers Lifted Stocks To Record Highs
Over the past few years, the stock market has risen from the depths of the financial crisis, experiencing a steady bull market. If you look at the major indexes today, many are near record levels, leading many observers to ask what or who is driving this recent surge in demand for stocks. It turns out, the biggest buyers have been the listed companies themselves – and they are buying back stock at a record pace.
The rise in the markets has left many companies sitting on cash, searching for ways to deploy it. One option is to invest in growth opportunities such as R&D and acquisition activity. Another is to return the cash to shareholders via a dividend payment or stock buyback program. In the post-crisis economic environment, which has offered bouts of uncertainty, companies have increasingly chosen to return their cash to shareholders in lieu of investing in riskier growth-related activities.
A stock buyback, or share repurchase, occurs when a company purchases shares of its own stock, thereby reducing the number of shares outstanding. A company typically uses cash to fund the purchase, though the purchase can also be financed.
Keep reading How The Market's Biggest Buyers Lifted Stocks To Record Highs.
