Corporate Buybacks Continue at Record Levels: Q2 2006

Net share repurchases by nonfinancial nonfarm corporations ran at an annual rate of $554.8 billion, about the same level as in Q1 2006 and more than ten times the level of 2001 and five times the level of 2000, the peak of the Great Bubble.

See flow of funds table F213.

Amounts paid to exiting shareholders (including holders of executive options and short sellers) exceeded amounts paid equitably to all shareholders as regular dividends by 44%.

Cash dividends plus net stock buybacks were 117% of net profits after taxes. It would seem that the imperative of keeping stock prices high to give value to stock options now clearly trumps most considerations of investing for the long term in US corporations.

This extreme level of buybacks was financed by issuing bonds, taking on new debt, and by drawing down cash reserves.

While corporate executives were keeping buybacks at record levels, other sectors were significantly easing up on equity purchases:

Sector Q1 2006 Q2 2006 % Change
Rest of the World 223.6 16.8 -92%
Commercial Banks 1.9 -2.9 *
Life Insurance Companies 61.6 46.0 -25%
Fed Gov’t Ret. Funds 8.9 -3.1 *
Mutual Funds 204.5 94.0 -46%
Brokers and Dealers 31.4 -34.3 *

Note (*): Net buyers reversed into net sellers of equities. Figures in $ billions, annual rates

It would seem that stock prices in Q2 2006 were sustained mainly by extreme levels of stock repurchases by corporate executives.

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