Stock buybacks show no signs of a slowdown so far this year

Companies in the S&P 500 bought a record amount of their own stock last year and don't show any signs of slowing down.

Flush with cash from solid earnings, companies repurchased $882 billion of stock in 2021. Goldman Sachs is forecasting stock buybacks to reach $1 trillion this year, even as companies grapple with rising inflation, higher interest rates and the potential for stunted economic growth.

Companies use repurchases, in part, to return cash to investors and support the stock's price. Earnings per share can increase because there are fewer shares outstanding. Buybacks also signal confidence from leadership about a company's financial prospects.

During the fourth quarter, one out of seven companies in the S&P 500 increased their earnings-per-share by at least 4% thanks to their newly lowered share count, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Companies such as Amazon and General Electric have approved additional repurchases, setting the stage for more buybacks in 2022.

Stocks fell as much as 12% to start the year before a recent rally. Silverblatt says indications are that companies continued to buy back shares through the downturn, “which means they’ll be getting more shares for their expenditures and reducing share count even further, resulting in higher earnings per share.”

Goldman Sachs expects buybacks to continue representing the largest use of cash for S&P 500 companies, followed by capital expenses. The trend is being supported by a strong backlog of authorizations to repurchase stock, along with solid earnings growth and high cash balances.

Companies are plowing more of their cash into repurchasing their own stock even as they face higher expenses for raw materials, shipping and labor. So far, companies...