Buyback suspensions have calmed down. Looking at S&P 500 buyback activity, after reaching a peak of 35 buyback program suspensions in April, there were 16 suspensions in May, and none in June. That trend—from a peak in April to a complete drop-off in June—is also present when looking at all U.S. and global buyback suspensions.
The surge in share repurchase program suspensions followed the World Health Organization’s pandemic declaration in March. In the first half of the year, a total of 82 share repurchase programs were suspended among the S&P 500; in that same period, there were 259 overall U.S. suspensions and 329 suspensions worldwide. Notably, all S&P 500 buyback program suspensions this year occurred after the pandemic was declared on March 11.
In May, United Parcel Service, Inc., The Home Depot Inc., Dollar General Corp., and Kohl’s Corp. were among the 16 S&P 500 companies to suspend buybacks.
The impact of the pandemic is also apparent in the dramatic drop in the total number of share repurchase programs that were announced in the first half of 2020 compared to the same period last year: 38 programs were announced in the first half of this year (including at least nine programs that were subsequently suspended) versus 106 programs announced in the first half of 2019.
Buybacks are the subject of historical and ongoing controversy. Typically, corporations initiate share repurchases to return capital to shareholders, take advantage of undervalued shares, offset dilutive actions (such as mergers or employee share programs), or boost earnings per share. In the current volatile environment, many corporations may prefer to conserve cash, but politics and optics may also be at play in shaping companies’ decisions regarding buybacks. Additionally, if a company has received stimulus funding under the CARES Act, neither it nor its affiliates may repurchase the company’s public shares for a period of one year following repayment of the funds.
Successfully implemented new buyback programs (i.e., ones that don’t get canceled) announced in the second half of the year will tell the extent to which there will be a return to pre-pandemic levels.
With assistance from Nageen Qasim, Bloomberg L.P.
If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content.