President Donald Trump’s biggest tax overhaul in decades has raised the appeal of buyback ETFs. This is especially true as a massive $1.4-trillion tax cut and the repatriation policy have prompted companies from almost every sector to boost their multi-billion dollar share buyback program this year.
Notably, approximately $2.6 trillion in American corporate profits are sitting in overseas bank accounts, about half of that being in cash. The new tax law encourages these companies to bring this cash back home at much reduced rates.
U.S. companies have announced $209 billion worth of share buyback since the beginning of this year, according to the latest report from Senate Democrats. A California-based research firm TrimTabs stated that the pace of buybacks had exploded in February to a record $153.7 billion from $59.9 billion in January. Among the largest share repurchases so far, Cisco (CSCO – Free Report) has been on the forefront, with its additional $25 billion buyback plan. This was followed by $22.6 billion for Wells Fargo (WFC – Free Report) , $15 billion for Pepsico (PEP – Free Report) , $10 billion for Abbvie (ABBV – Free Report) and $10 billion for Amgen (AMGN – Free Report) .
Given this optimism, 2018 is expected to be the second-busiest year for buybacks since the bull market began in 2009 as U.S. companies are on track to return a record $1 trillion to their shareholders. An analyst at J.P. Morgan (JPM – Free Report) expects companies on the S&P 500 index to buy back as much as $800 billion in shares of their own stock this year, representing a whopping jump of 51% (i.e. $300 billion) from $530 billion repurchased last year.
About $100 billion of additional buybacks is the result of the tax savings and stronger earnings while $200 billion will be generated from the repatriation bonanza. Another analyst at Goldman Sachs (GS – Free Report) projects that buybacks will rise 23% this year to $650 billion.
