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What are we looking for?

Large-cap U.S. companies with substantial total shareholder yields.

The screen

With rising interest rates, investors now have access to yields of over 4 per cent through high-interest savings accounts, government bonds and GICs. Dividend yields are growing increasingly paltry in comparison to the now lucrative risk-free rates, as the potential capital gains that come alongside dividend stocks are offset by the risks accompanying an uncertain economic backdrop. To help attenuate these risks, investors can select stocks that have share repurchase programs, providing an additional margin of safety.

Share buybacks provide companies the opportunity to return capital to shareholders without the need to pay a dividend on those shares. Moreover, buybacks can provide a floor to a falling stock price, as resourceful management teams can repurchase stock in the open market, putting upward pressure on the share price.

We began identifying companies with strong share buyback programs by using FactSet’s Universal Screening tool. We applied the following parameters:

  • Traded on a U.S. exchange
  • Market capitalization greater than US$100-billion (we skewed toward larger companies as an additional indicator of safety)
  • Buyback yield above 2 per cent (calculated as dollar value of share buybacks divided by market capitalization)
  • Dividend yield above 2 per cent
  • Total shareholder yield greater than 4 per cent (calculated as dividend yield plus buyback yield). We chose 4 per cent as this exceeds the chosen risk-free rate of 4 per cent.

We ranked the 17 remaining companies by their total shareholder yields (top 10 shown).

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What we found

U.S. stocks buying back shares

RANKCOMPANYTICKERFACTSET SECTORFACTSET INDUSTRYRECENT CLOSE ($)MKT. CAP. ($ MIL.)1 YR. TTL. RTN. (%)YTD. TTL. RTN. (%)LTM SHS. REPO ($ MIL.)LTM BUYBACK YLD. (%)LTM DIV. YLD. (%)LTM TTL. YLD. (%)P/E RATIO (X)
1ConocoPhillipsCOP-NEnergyUpstream Energy120.44144,225.813.04.88,545.05.95.111.08.1
2Morgan StanleyMS-NFinanceInvestment Services83.51138,373.3-3.30.87,647.05.53.69.213.8
3Lockheed Martin CorporationLMT-NIndustrialsIndustrial Manufacturing420.66105,935.42.4-11.86,794.06.42.69.022.5
4Comcast Corporation Class ACMCSA-QTelecommTelecommunications45.26186,703.531.732.311,267.06.02.78.728.8
5Chevron CorporationCVX-NEnergyIntegrated Oil & Gas Exploration & Production163.76312,388.26.1-6.215,628.05.03.78.79.8
6Goldman Sachs Group, Inc.GS-NFinanceInvestment Services324.65107,027.7-1.7-3.25,796.05.43.18.511.4
7Wells Fargo & CompanyWFC-NFinanceBanking41.33151,217.5-6.22.38,032.05.32.88.113.1
8Exxon Mobil CorporationXOM-NEnergyIntegrated Oil & Gas Exploration & Production114.16457,004.522.26.117,849.03.93.47.38.3
9Bristol-Myers Squibb CompanyBMY-NHealthcareBiopharmaceuticals60.81127,038.3-10.5-13.44,156.03.33.56.824.4
10United Parcel Service, Inc. Class BUPS-NIndustrialsIndustrial Services160.89137,605.3-16.0-4.93,756.02.73.56.213.2

Factset

Three of the 10 companies passing our screen were U.S. banks, notorious for buying back substantial amounts of stock during the pandemic. There are current discussions around a new regulatory proposal, the Basel III endgame, that could require banks to make sweeping changes to their capital requirements. These changes could affect lending practices and could mean less capital available to repurchase shares, ultimately pressuring banks to conservatively manage their buyback programs.

Morgan Stanley, a global financial services provider and investment bank, ranked No. 2 on our screen with a total shareholder yield of 9.2 per cent. Morgan Stanley recently reauthorized a multiyear share repurchase program of up to US$20-billion, representing 14.5 per cent of its total market capitalization. Given that this is a multiyear repurchase authorization and the potential effects of the Basel III endgame proposal in 2023, the bulk of this repurchase program could be executed in 2024 onwards.

Wells Fargo, the fourth-largest U.S. bank by consolidated assets, ranked No. 7 on our screen with a total shareholder yield of 8.1 per cent. Like Morgan Stanley, Wells Fargo stood out after making headlines in July, 2023, by approving a US$30-billion share buyback program, representing 19.8 per cent of its current market capitalization. As a bank that predominantly generates its revenues through commercial and residential loans, Wells Fargo may continue to be a beneficiary of rising interest rates.

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division. He personally owners shares in Lockheed Martin and Exxon Mobil.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

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