Companies in the US may need to spend more money buying back their own shares if they wish to increase their earnings per share, according to S&P Dow Jones Indices.
The group said it had carried out research that showed share buybacks decreased by 1.6 per cent to $116.2bn (£71bn) in the second quarter of this year, down from $118bn during the second quarter of 2013.
This year’s second quarter figure is also down markedly from the $159.3bn figure spent on stock buybacks by US companies in the S&P 500 index during the first three months of this year. That figure was the second largest on record.
On a sector basis, information technology continued to dominate the group, even as its buybacks decreased to represent 26.3 per cent (down from last quarter’s 30.9 per cent) of all S&P 500 buybacks.
Apple led the index with its $5bn stock repurchase programme in the second quarter, down from its record $18bn expenditure the previous quarter.
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said: “If companies wish to continue the trend of decreasing share count and therefore increasing earnings per share (EPS), they may need to spend more on buybacks.”
He added companies continued to increase their total shareholders’ returns through regular cash dividends, as well as buybacks, even as the second quarter total expenditure declined from the first quarter.
Over the year ended June 2014, buyback and dividend expenditures combined to reach a record high of $865.9bn, with buybacks representing 61.6 per cent of the total.
The analyst said buybacks were half the stock supply story, with company stock issuance (for employee options, mergers and acquisitions or financing) being the other half.
For the second quarter of 2014, companies reduced their spending on buybacks, even as the average daily stock price rose 3.6 per cent, resulting in fewer shares being purchased.
However, companies on aggregate also issued fewer shares, with the net change resulting in a lower share count and higher earnings per share.
“By reducing their share count, more companies are adding tailwinds to their EPS,” Mr Silverblatt added.
“During the second quarter, 23 per cent of S&P 500 issuers reduced their year-over-year share count enough to push up earnings per share significantly versus just shy of 20 per cent during Q1 and 12 per cent during the second quarter of 2013.”
S&P Dow Jones Indices’ data showed more companies continued to reduce their share count, with 295 doing so in Q2, up from 290 in the first three months of 2014 and 223 in the second quarter of 2013.
In spite of the fall in the second quarter, the group said for the 12 months to June 2014, S&P 500 issuers increased their buyback expenditures by 26.6 per cent to $533bn – up from $420.9bn for 2013.
