(BFM Bourse) – The total amount of share buybacks fell by 14% worldwide in 2023 compared to 2022, which was then a record year. Europe is an exception, with share buybacks increasing last year.
The rise in interest rates also had consequences on the return to shareholders. The rise in the cost of money has made access to credit more complicated and encouraged companies to conserve their liquidity or even invest it, rather than returning it to its holder.
And in this context, global listed companies actually spent less money on share buybacks last year. This is what Janus Henderson’s study published this week shows, based on announcements from 1,200 large global companies.
According to the latest tally from the management company, listed companies spent $1,110 billion in 2023, a drop of 14% compared to the record amount of $1,281 billion for the year 2022.
This drop is “significant enough” for these share repurchases to appear below the amounts for the year 2021. But this decline must be put into perspective, recalls Janus Handerson to the extent that “this drop starts from a very high base and leaves the annual total well above pre-pandemic levels.”
The management company points out that share buybacks are very concentrated. Just over half of the companies in the sample repurchased shares in 2023, but only 45 of them accounted for half of the annual total spent on share repurchases globally.
7 dollars out of 10 bought by American companies
In the United States, the flagship country of this method of shareholder return, American companies are those which have bought back their own shares the most in the world, for a total amount of 773 billion dollars in 2023. However, the amounts devoted to these operations fell by 17% from one year to the next. American tech companies are the ones that have reduced their allocations for share buybacks, with $69 billion less than the previous year. Among them, Microsoft and Meta reduced their buybacks by almost a third, and Apple by a seventh.
Outside the United States, British companies bought back $64.2 billion worth of shares. This amount only decreased by 2.6% compared to the previous year and represents 75% of dividends paid.
Shell is the largest buyer of its own shares outside the United States, accounting for almost a quarter of the total on British soil. But it has also sharply reduced its purchases in 2023, as have BP, BAT, Lloyds and a number of other major UK blue-chip companies. “Significant increases from HSBC, Barclays and others almost offset these reductions, resulting in only a slight overall decline for the year,” adds Janus Henderson.
Buybacks on the rise in Europe
It is especially in Europe that share buybacks are on the rise. Across the region, the total amount paid increased by 2.9% to $146 billion in 2023.
Buybacks reached a record level in Italy, driven by Unicredit and Stellantis, in Spain, thanks to Santander, Iberdrola and Telefonica, in Norway (Equinor) and Belgium (AB-Inbev and KBC). But it was in France, Switzerland and the Netherlands that share buybacks were the most significant.
This method of returning to shareholders could be less attractive in France in the future. The government plans to include in the next finance bill (PLF) a measure to tax companies that buy back their own shares, according to Le Figaro.
In Switzerland, on the other hand, the majority of companies have reduced their buybacks, including the giant Nestlé which slashed its shareholder return program by almost half, to amount to $5.8 billion.
“Rising interest rates have played a role in the decline in share buybacks: when debt is cheap, it makes sense for companies to borrow more (provided they do so prudently) and use the proceeds from these borrowings to raise expensive equity capital,” says Ben Lofthouse, head of the Global Equity Income team at Janus Henderson.
“At this point in the cycle, some companies are paying down debt using cash that could have been devoted to share buybacks, but very few are cutting dividends, as our upcoming Global Dividend Index will show,” he continues.
Should we expect buybacks to stall again in 2024? “It’s tempting to extrapolate a further downward trend in repurchases. But one year of declines from multi-year highs is not evidence of this trend. It’s a matter of companies finding the right balance between capital expenditure, their financing requirements and shareholder returns via dividends, buybacks or both,” concludes Ben Lofthouse.
Sabrina Sadgui – ©2024 BFM Bourse