Experts split after buybacks hit record high

CHRIS DORRELL

EXPERTS have raised questions about the benefits of share buybacks, after companies bought back a record number of shares last year.

Buybacks reached record levels globally in 2022 according to figures from Janus Henderson, rising 22 per cent year-on-year to hit $1.3 trillion (£1.04 trillion). Buybacks were worth 94 per cent of dividends in 2022, compared to 52 per cent in 2012.

In the UK, the increase was significantly greater, nearly tripling, with $70.53bn shares bought back in 2022 compared to $24.61bn in 2021.

Shell and BP were the lead contributors, buying back $19bn and $11bn worth of shares respectively.

The scale of the buybacks has raised questions about the best way for firms to reward shareholders, with some experts arguing they are not as beneficial as dividends.

Janus Henderson’s Ben Lofthouse said: “Buybacks cannot always be relied on to enhance shareholder returns. Their discretionary nature makes them more volatile, as evidenced in 2020’s Covid disruption when they fell dramatically.”

He noted shareholders who rely on an income stream from their investments often prefer dividends.

Others disagreed, however, with Hargreaves Lansdown’s Sophie LundYates calling the increase in buybacks a “marker of confidence in the UK’s financial sector”.