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. In the following sections, the performance and attributes of the S&P 500® Buyback Index is discussed, and the study is extended to the mid- and small-cap spaces in the U.S.
EXECUTIVE FINDINGS
- Over a long-term investment horizon, buyback portfolios generated positive excess returns over their benchmark indices in the large-, mid-, and small-cap segments of the U.S. market.
- All buyback portfolios generated higher average monthly excess returns over their benchmark indices in down markets than in up markets, regardless of weighting methods.
- Compared with dividend portfolios, buyback portfolios tended to have lower dividend yields and most of their outperformance was driven by capital gains rather than dividend income. Buyback portfolios achieved more balanced win ratios and excess returns in both up and down markets, which is a good complement to defensive portfolios that focus on strategies such as dividends and low volatility.
- The equal-weighting method employed in the construction of our buyback indices enhances win ratios and excess returns in up markets, making the outperformance of buyback indices more balanced in both up and down markets. The impact of equal weighting is more significant in the large-cap space than in the mid- and small-cap spaces.
- Both equal-weighted and market-cap-weighted buyback portfolios were tilted toward high earning yield in the past 20 years that ended Dec. 31, 2019. The overlay of equal weighting gives the portfolios an extra small-cap bias, especially in the large-cap space.
