Apple sweetens S&P 500 buyback and dividend boom

Apple is leading a surge in US companies returning cash to shareholders, with S&P 500 equity investors set to receive a record $1tn from buybacks and dividends this year.

US companies have increasingly appeased investors in recent years, notably high-profile activist shareholders, with share repurchases and dividends at a time of lacklustre economic and revenue growth.

Against that backdrop corporate treasurers have focused on returning greater amounts of cash to shareholders, rather than investing in large projects, attracting critics.

A relative latecomer to the buyback and dividend trend, Apple, the world's most valuable company with a market capitalisation of $771bn, this week eclipsed ExxonMobil as the largest payer of dividends after it released earnings on Monday, according to analysts at S&P Dow Jones Indices.

Apple said it would expand its dividend and buyback schemes to return a total of $200bn to shareholders by the end of March 2017, up from the $130bn programme of a year ago. That includes a further $50bn in share repurchases and an 11 per cent dividend increase.

As the quarterly US corporate reporting season enters the home stretch, with Exxon reporting earnings on Thursday, analysts at Goldman Sachs said: "Corporate repurchase activity will resume in full force [this week] as 81 per cent of S&P 500 market cap exits its buyback blackout period."

On average 10 per cent of annual repurchase spending occurred in May versus 6 per cent in April, said the analysts.

Many companies have taken advantage of historically low borrowing costs and sold debt to help pay for shareholder-friendly activities. On Tuesday US bond investors saw multibillion-dollar debt sales from Amgen and Oracle. Amgen, a biopharmaceutical company, has said it will use the proceeds to buy back shares, while computer technology group Oracle says debt may fund buybacks and dividends.

Buybacks have traditionally been a way to boost shareholder value and offset options granted to employees. But their proliferation has made them an important source of support for the stock market, as domestic individual investors have largely remained on the sidelines of the bull run since the financial crisis.

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In 2014 companies bought back shares and paid dividends totalling a record $904m, according to S&P Dow Jones Indices, and expectations are that this figure will top $1tn this year.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said that mark could be reached if companies achieved at least single-digit earnings increases this year and the stock market maintained current levels.

"If the market falters, then no, because companies would be paying less for the same amount of shares and would probably be more nervous on dividends," he said.

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