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Stock buybacks tend to be badly timed [ClearOnMoney]
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Stock buybacks tend to be badly timed

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Commentary

Stock buybacks tend to be badly timed

26 Jan 2011 by Jim Fickett.

It is often remarked that companies tend to buy back stock when prices are high rather than low. Econompic had yesterday a nice graphical illustration of this fact.

The below chart shows the dividend yield (dividends divided by the S&P 500's market cap) and buyback yield (buybacks divided by the S&P 500's market cap) on a quarterly basis (annualized) going back to 2004.

While getting cash back to shareholders is the whole point of investing in stocks (timing of returning that cash is potentially a broader question), the higher buyback yield is not necessarily a great thing; it is a great thing if the cash is buying back stock when cheap… not when expensive. And when were corporations buying back the most? Q2 and Q3 2007 (i.e. the market peak). The lowest? Q1 and Q2 2009 (i.e. the market trough).

This illustrates well why I am generally skeptical of companies where management puts an emphasis on buybacks.