How Stock Buybacks Hit Record $1.31 Trillion in 2022

Last year was horrible for stock prices, amid spiraling rates and recession anxieties, but share buybacks booked a record $1.31 trillion worldwide. Asset manager Janus Henderson tabulated the impressive statistics summarizing the repurchasing tsunami.

Why did this happen amid an epic investor freakout, as the S&P 500 plummeted 19.5% in 2022? It’s part of a tend that has been growing in recent years, explained Ben Lofthouse, head of global equity income at Janus Henderson. Low interest rates, ample corporate cash flow and a desire to curry investor favor all factored into the buyback surge, he noted.

Will the upward movement continue? “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,” Lofthouse wrote in the Janus study. In that spirit, Goldman Sachs warned Wednesday that higher rates and the long-awaited economic slowdown may temper the buybacks this year.

Still, for the moment, buybacks are on a roll, with signs that this year’s first quarter continued the momentum.

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Another element contributing to repurchasing’s ascent is that buybacks are focused among the most successful companies, those best able to reward their stockholders. The reigning champ is Apple, which bought back a whopping $89 billion of its shares last year. Other big repurchasers include Exxon Mobil, Procter & Gamble and Microsoft.

The buyback avalanche “is not a one-year phenomenon,” the Janus report stated. Buybacks have almost tripled in value since 2012, up 182%, besting the 54% growth in dividends during the same period. The oil sector is one of the biggest contributors: As energy prices spiraled, its companies bought back $135 billion of their shares last year, more than four times 2021’s tally.

The sector with the biggest buyback effort last year was tech, at $286 billion. Facebook parent Meta Platforms and Google parent Alphabet had major repurchase programs, a nice gift to investors as the two pay no dividends. Financial stocks were in second place at $245 billion.

The ascent of buybacks, when compared with dividends, is remarkable. In 2012, they were 52% of dividends paid out globally; in 2022, buybacks almost reached parity, at 94%. For buybacks, there’s a built-in advantage: They are a good way to return cash to investors without being tied to dividend payout schedules. Companies can freely expand and contract their repurchase, with little investor concern, but if they cut dividends, the market often reads that as a sign of trouble and punishes the cutter’s stock.

The buyback jump came despite a new 1% federal tax on them. President Joe Biden wants to hike that levy to 4%, although support for the proposal is not widespread.

Biden Budget Proposes End to Carried Interest, Higher Tax on Buybacks

Downturn-Spooked JPM Axes Buybacks—So Will Others Follow?

Tags: Alphabet, Apple, ExxonMobil, Janus Henderson, Joe Biden, meta Platforms, Microsoft, Procter & Gamble, stock buybacks

Five years after being proposed and more than two years since being introduced by the Pension Schemes Act 2021, the Royal Mail Collective Pension Plan has become the first collective defined contribution pension plan authorized in the U.K.

Collective defined contribution plans offer a third type of pension plan, in addition to defined benefit plans and defined contribution plans. In a CDC plan, both the employer and employee contribute to a collective fund that provides an income in retirement. Unlike a defined benefit plan, the employer does not guarantee the benefits paid by the plan. Instead, CDC plans provide a target pension; if the plan is underfunded or overfunded, the pensions it pays can be decreased or increased accordingly.

The Pension Schemes Act of 2015 first included a provision for the government to allow the creation of CDCs, which were then called defined ambition pension plans. However, the provisions never came into force. In February 2018, after the Royal Mail decided to close its defined benefit plan, the postal service company and the Communication Workers Union agreed to introduce a CDC plan. Regulation at the time, however, did not permit CDCs.

The following month, the U.K. government noted that there had been calls for it to legislate a provision for CDC plans. Later that year, the government concluded that the provisions in the Pension Schemes Act of 2015 Act were not the most appropriate way of providing CDC benefits.

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The Pension Schemes Act of 2021 eventually provided the necessary legislation, and CDC regulations came into force in August 2022 allowing plans to apply for authorization from The Pensions Regulator.

“TPR authorizing the first CDC scheme is a landmark moment, and this is just the beginning,” Laura Trott, the U.K.’s minister for pensions, said in a release. “We have seen the positive effect of these schemes in other countries, and our plans to extend our CDC framework will enable more pensioner savers to achieve the retirements they want.”

While CDC plans are new to the U.K., they are common in the Netherlands, Canada and Denmark, yet not everyone is convinced CDC plans should be adopted. A report from the Centre for Policy Studies, a conservative think tank, called CDCs risky and untested.

“The system risks creating irreversible intergenerational injustice by overpaying pensioners at the expense of current and future employees,” the report said. “The evidence all points to an obvious conclusion—CDC schemes in the UK are superfluous.”

Unison, the largest union in the U.K., urged caution when the U.K.’s Department for Work and Pensions announced it was launching the new pension model. Defined benefit plans remain Unison’s preferred type of pension plan for its members, although it does see CDCs as an improvement over defined contribution plans.

“UNISON supports improving member outcomes through the introduction of collective defined contribution for members in defined contribution schemes,” Glyn Jenkins, Unison’s head of pensions, said in a release. “But the new schemes should not be used to replace viable defined benefit schemes.” Jenkins added that “these new pension arrangements must not erode current provision.”