Buybacks Not Going Bye-Bye

On numerous occasions during the current seven-year bull market, Joe and I have argued that corporate buybacks and dividend payouts have been the major drivers of the bull market. We argued that corporations would have an incentive to buy back their shares as long as the forward earnings yield of the S&P 500 exceeded the after-tax cost of raising money in the corporate bond market. Last week, the former was 6.2%, while we estimate the latter was under 4.0%.

S&P recently compiled buyback data for Q1-2016, which Joe added to our S&P 500 Buybacks & Dividends and S&P 500 Yields: Earnings, Dividends, & Buybacks chart books. Let’s review the latest stats, which remain bullish for stocks:
 
(1) Buybacks & dividends. During the quarter, buybacks totaled $646 billion at an annual rate, the highest since Q3-2007. During Q1-2016, the four-quarter sum of buybacks and dividends was a record $975 billion, exceeding the previous record high of $835 billion hit in Q4-2007. From Q1-2009 through Q1-2016, buybacks and dividends totaled a staggering $5.1 trillion, with the former at $3.0 trillion and the latter at $2.1 trillion.

(2) S&P 500 yields. Joe calculates that the dividend yield for the S&P 500 was 2.15% at the end of Q1. The buyback yield was 3.28%, resulting in a combined yield of 5.43%.