More Diverse Industry Participation Driving Record-Setting Buyback Levels in 2019

Michael Schoonover, COO & Portfolio Manager
Michael Schoonover is Chief Operating Officer of Catalyst Capital Advisors LLC and Rational Advisors, Inc. and Portfolio Manager of a share buyback strategy fund at Catalyst Funds. He began his association with Catalyst in 2011 as a research consultant supporting the implementation and back testing of quantitative strategies. In March 2013, he became a senior analyst at Catalyst to provide investment research for several mutual funds. From 2005-2011, he served in various technical and scientific management roles with the Perrigo Company. Mr. Schoonover has an MBA with high distinction from the University of Michigan Ross School of Business and a BS from the University of Michigan.

In a December Barron’s article, I anticipated that 2019 could potentially surpass 2018 in terms of companies authorizing buybacks. Earlier this week, I published an article on ValueWalk discussing how more diverse participation across industry sectors has resulted in 2019 already outpacing the record-setting year in 2018 of more than $1.08 trillion in share repurchase authorizations. As of the end of February 2019, this remains the case with 197 companies authorizing more than $227 billion in buybacks versus 181 companies authorizing $221 billion in buybacks at this point last year.

Record buyback activity during 2018 and 2019 has been fueled by tax reform, lower corporate taxes, and corporate cash repatriation at more favorable rates. Last year, many companies used their tax savings to pay down debt and issue one-time bonuses. We expect more of that money to flow into buybacks this year and future years.

The buyback authorizations so far this year have been from a more diverse set of industries compared to last year. While we are just 16.7% through the year, the average sector’s buyback authorizations are at 31% of 2018 levels with seven of the 12 sectors at 30% or more of 2018’s levels.

More diverse participation in buybacks may mean more support to the market. Consider 2018 where 51% of buybacks could be accounted for by either 27 companies or just two sectors (technology and financials). In this scenario, a vast majority of companies had a much smaller buyback allocation to work with in order to support their stock prices, especially during the periods of volatility. This year, more diverse participation in buyback authorizations could change that.

2019 YTD Buyback Data as of 2/28/2019

Sector Buyback Amount ($ billions) % of 2019 Total % of 2018 Amount
Information Technology $52 23% 14%
Industrials $36 16% 38%
Energy $29 13% 71%
Consumer Discretionary $37 16% 34%
Communication Services $17 7% 40%
Financials $20 9% 11%
Health Care $13 6% 9%
Materials $11 5% 40%
Real Estate $3 1% 40%
Consumer Staples $7 3% 12%
Utilities $1 0% 30%

Source: Catalyst Capital Advisors LLC, Bloomberg LP and FactSet.

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