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S&P 500 share buybacks slump in Q2 after record year

Share buybacks by S&P 500 companies slowed significantly in the second quarter after surging to a record in 2018 on the back of strong corporate profits and a trillion-dollar tax cut from the Trump administration.

Buybacks dropped 19.5% from the first quarter to an estimated $165.7 billion, according to data from S&P Dow Jones Indices. Companies repurchased a record $223 billion of their own stock in the fourth quarter of 2018, taking the annual total to $806.41 billion, also an all-time high, and a 55% increase from the previous year.

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At the end of 2018, S&P 500 companies were sitting on $1.39 trillion of cash, suggesting a possible further surge in buybacks in 2019, but a bleaker economic outlook appears to have dampened enthusiasm.

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Apple bought back $18.15 billion in shares in the second quarter.

Source: Associated Press

"The 2018 tax rate decline may have pushed companies to overspend on buybacks," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "Some of the decline is due to specific M&A work, however, the declines remain prevalent."

Apple remains buyback king

IT and financials companies dominate the top spots in the buyback charts, each with four of the top 10 in the second quarter.

Apple Inc. remains top of the tree, having reinvested $18.15 billion in its own stock in the second quarter, down from $23.81 billion in the first quarter, but still well in front of second-place Bank of America Corp. on $6.51 billion.

As a sector, IT's expenditure declined 23% from the first quarter and 18% from the second quarter of 2018. Financials declined less quarter over quarter, by 13%, and were up 21% year over year.

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"The third quarter of 2019 will be critical to see where companies support their buyback levels," said Silverblatt.

The news for shareholders was not all bad as dividends set a record of $14.24 per share. Silverblatt expects the third quarter to beat the record and for 2019 to mark an eighth consecutive year of record payouts. Although at an average increase of 9.83%, the pace is slower than the tax cut-fueled 13.48% in 2018.