Standard & Poors: Examining Share Repurchasing and the S&P Buyback Indices in the U.S. Market, 2020

Since 1997, share repurchases have surpassed cash dividends and become the dominant form of corporate payout in the U.S. This paper gives an overview of share repurchases in U.S., including trends in corporate payouts, major types of and motives behind share repurchases, and the price impact.

Summary:

The research paper “Examining Share Repurchases and the S&P Buyback Indices” by S&P Dow Jones Indices provides an in-depth analysis of share repurchase trends in the U.S. market and the development of the S&P Buyback Indices.

• Dominance of Share Repurchases: Since 1997, share repurchases have surpassed cash dividends, becoming the primary form of corporate payout in the U.S. The proportion of companies engaging in buybacks increased from 28% in 1980 to 53% in 2018, while dividend-paying companies decreased from 78% to 43% during the same period.
• Financial Flexibility and Tax Advantages: The increased use of share repurchases is attributed to their tax benefits and the financial flexibility they offer companies. Unlike dividends, which are taxed as income, buybacks can be more tax-efficient, especially when capital gains taxes are lower than income taxes.
• S&P Buyback Indices: To track the performance of companies with significant share repurchase activity, S&P Dow Jones Indices developed the S&P Buyback Indices. These indices are constructed by selecting companies with the highest buyback ratios, aiming to capture the potential outperformance associated with substantial repurchase activity.

In summary, the paper highlights the growing prevalence of share repurchases in corporate payout policies and introduces the S&P Buyback Indices as a tool to evaluate the performance of companies with significant repurchase activity.

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