Cash-Rich Companies Set Record for Buybacks

Posted May 18, 2018 3:27 p.m. EDT

American companies, flush with cash from the $1.5 trillion tax cut, bought back a record quantity of their own shares during the first three months of the year.

Companies repurchased $178 billion of shares during the first quarter, up more than 42 percent from the same period in 2017, according to S&P Dow Jones Indices. That was the largest amount ever repurchased, topping the previous record from the third quarter of 2007.

Companies buy back their shares when they believe they have nothing better to do with their money than to return capital to shareholders. By reducing the number of shares outstanding, the buybacks can help boost the companies’ stock prices.

The surge in buybacks has stoked controversy over the tax cut package that President Donald Trump championed. Republicans said the deal would be “rocket fuel” for the U.S. economy. Democrats argued the share buybacks show that the tax cuts were a giveaway to the wealthy and won’t stimulate corporate investments and job creation.

But even as companies splurged on their shares, investments in real estate, equipment and factories also jumped more than 21 percent compared to the first quarter of last year. Typically the first quarter is weak for investment, so the rise bodes well for corporate spending this year.

“I do not look at it as a one-shot deal,” said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.