Home Business NewsBusinessBanking News BP’s plans mean FTSE 100 share buybacks are on track to set new-all time high in 2022

BP’s plans mean FTSE 100 share buybacks are on track to set new-all time high in 2022

by LLB Reporter
9th May 22 12:07 pm

The debate over BP’s bumper profits and the rights and wrongs of a windfall tax looks set to continue but the facts of the matter are that the oil major’s latest plans to return cash to its investors mean the FTSE 100’s members are poised to set a new all-time record for share buybacks in 2022.

AJ Bell investment director Russ Mould said: “BP’s plan to buy back $2.5 billion of stock in the second quarter of this year, coupled with announcements from Next and Endeavour Mining about their buyback activity, means that FTSE 100 firms are now planning £37 billion of buybacks this year, to surpass the prior peak of £34.9 billion in 2018.

“BP’s $2.5 billion second-quarter plan supplements the first-quarter’s $1.6 billion outlay on buybacks and catapults the firm into fourth place in terms of this year’s buyback announcements by FTSE 100 members. It also cements the oil and gas giant’s third-placed ranking for buybacks since 2000.

billion (and that is before any special dividends). The dividends equate to a forward dividend yield of 3.9% and the buybacks add a further 1.8% to that, to take the cash yield from the FTSE to 5.7%.

“That may provide some succour to patient investors who are looking at a broadly flat capital return from the FTSE 100 in the year to date. This is the second-best performance among major indices in the world in 2022 so far, trailing on Brazil’s modest gains, in local currency terms.

“Those planned cash returns may therefore be helping to persuade investors to stick with UK equities rather than look elsewhere, although the danger remains that buyback plans are revised and dividend forecasts prove over-optimistic, should a recession or other unexpected development strike.

“Buybacks are particularly subject to revision, as there is far less stigma when a management team quietly parks a programme compared to when a boardroom has to sanction a dividend cut.

“In 2020, FTSE 100 firms returned £10.2 billion to their shareholders via buybacks but scrapped plans to buy back £10.3 billion more as the pandemic spread, lockdowns were imposed and the globe plunged into a recession, to the great detriment of corporate profits cash flows and in some cases balance sheets.

“Cynics will also flag how buybacks tend to be pro-cyclical. Buyback activity reached its high in 2006-07, as animal spirits were running most strongly just before the Great Financial Crisis swept the world. Over £60 billion in buybacks across those two years did nothing to support share prices in 2007-09 and buybacks slowed to just £3 billion in 2009 by the time the crisis was passing, and equity markets had collapsed and thus become much cheaper.

“Buybacks reached their next zenith in 2018 and buyback activity peaked that year, too, so management teams’ record of buying high rather than low may give some investors pause for thought as to whether buybacks are a potential contrarian indicator, especially in light of global equities’ spring woes.”

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