Home Depot Inc (NYSE: HD) and T-Mobile Us Inc (TMUS) are the latest companies to announce they will be committing billions of dollars buying back shares of company stock.
With Republicans seemingly on the brink of passing major tax reform plan that could lower the corporate tax rate from 35 percent to 20 percent, American companies could soon be ramping up capital return programs like never before.
On Wednesday, T-Mobile announced a $1.5 billion stock buyback program through 2018. Deutsche Telekom, which holds a 64 percent ownership stake in T-Mobile, also said it was considering buying additional shares of T-Mobile stock. T-Mobile may have a bit more cash on hand than anticipated these days after buyout talks with Sprint Corp. (S) recently stalled.
In addition, Home Depot announced a massive $15 billion buyback program that will start in February. The company also said it expects its 2017 full-year buyback to total $8 billion.
The announcements from T-Mobile and Home Depot come just a day after Bank of America Corp. (BAC) announced $5 billion in buybacks on top of the $12 billion buyback plan it announced earlier this year.
Republicans have argued that the huge corporate tax cuts and proposed repatriation holiday would free up massive amounts of cash that U.S. companies can invest in job creation for the middle class. Opponents of the tax reform bill argue that companies will instead choose to return that cash to wealthy shareholders in dividends and share repurchase programs. Buybacks help support share prices by creating artificial market demand for a stock.
Barry James, manager of the James Balanced Golden Rainbow Fund, says it makes more financial sense for companies to buy back stock than to acquire other companies or hire more employees.
“Over the long run, we are fans of companies that reward shareholders, and now is not the right time to find an acquisition cheaply,” James says.
American companies certainly have plenty of cash on hand for buybacks with or without a tax cut. Standard & Poor’s 500 index components currently have more than $1.5 trillion in cash on their balance sheets.
Investors looking to target buyback leaders can invest in buyback-themed exchange-traded funds, such as the PowerShare Buyback Achievers Fund (PKW). The fund’s three largest holdings are…
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