The Information Technology sector is doing the best at taking care of shareholders through share repurchases, with Apple and Microsoft at the top of the heap. However, Microsoft almost doesn’t deserve to be listed with Apple. Although the software giant is in second place, Apple’s spending on share buybacks dwarfs Microsoft’s.
IT share buyback spending climbs well above average
FactSet analyst Andrew Birstingl said in a report dated Dec. 15 that S&P 500 companies spent a total of $156 billion on share repurchases during the third quarter, which marks a 16% quarter over quarter increase and a 6.4% year over year increase. He adds that the total dollar amount of third quarter share repurchases during the quarter was the fourth highest since the beginning of 2005 and the second highest since the recession.
The number of companies in the index that bought back shares during the quarter edged upward slightly quarter over quarter from 380 to 383.
The Information Technology sector spent a total of $45.9 billion on repurchases during the third quarter, putting it far ahead of the other sectors.
Apple dominates in share repurchases
Four of the top ten companies on share repurchases are in the S&P 500’s IT sector, with Apple topping the list by far at $15.3 billion worth of repurchases. Of that amount, Birstingl reports that $14 billion of Apple’s buybacks were done through the open market. By buying back all of those shares, Apple was able to reduce the number of outstanding shares by about 2% quarter over quarter and 4.9% year over year.
Microsoft was in a distant second place behind Apple in share repurchases at $4 billion, which is part of the massive $40 billion buyback program it announced in September 2013. Here’s a look at the top ten companies in third quarter share repurchases:
Disney buys back shares on weakness
Birstingl said Walt Disney and McDonald’s were newcomers to the list, with both belonging to the Consumer Discretionary sector. Disney’s $3.3 billion in spending on buybacks was its biggest quarterly amount in a decade. Management gobbled up shares quickly during the third quarter after Disney’s share price plunged by more than 15%, seeing the pullback as a buying opportunity. Walt Disney shares have since bounced back, climbing 9.3% over the last few months.
It was a similar story at McDonalds, as the fast food chain’s management also bought back their largest quarterly amount in a decade. However, the reasoning here was more about the recently announced plan to up its shareholder returns $10 billion through the end of next year. McDonald’s is financing its investor distributions, resulting in a credit rating cut from Moody’s from A- to BBB+.
Industrials, Financials see largest growth
The FactSet analyst reports that the Industrials sector saw the largest growth except for the Telecom and Utilities sectors, which have each averaged less than $2 billion in repurchases per quarter since 2005. The Industrials sector racked up a 46.2% year over year growth rate, while Financials was in a disant second place at 27%. Four of the buyback sectors recorded positive growth in repurchases year over year.
Honeywell and American Airlines drove growth in the Industrials sector with $1.2 billion and $1.6 billion in third quarter repurchases respectively. In last year’s third quarter, Honeywell bought back $138 million, while American Airlines repurchased $132 million. AIG and Citigroup led the growth in the Financials sector, with AIG adding $2.4 billion to its repurchases year over year, bringing them to $3.7 billion. Citigroup repurchased almost $2 billion of its shares, marking a $1.8 billion year over year increase.
All graphs and charts in this article are courtesy FactSet.