S&P Dow Jones Indices announced today that preliminary results show that S&P 500 stock buybacks, or share repurchases, decreased 1.6% to $116.2 billion during the second quarter of 2014, down from the $118.1 billion spent on share repurchases during the second quarter of 2013. The $116.2 billion also represents a 27.1% decline over the $159.3 billion spent on stock buybacks during Q1 2014, which was the second largest on record.

According to S&P Dow Jones Indices, for the 12 months ending June 2014, S&P 500 issues increased their buyback expenditures by 26.6% to $533.0 billion from the $420.9 billion posted during the corresponding twelve month period in 2013. The twelve-month high mark was reached in fiscal year 2007, when companies spent $589.1 billion. The twelve-month recession low point was $137.6 billion, recorded in fiscal year 2009. 

Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, notes that buybacks are half of the stock supply story, with company stock issuance (for employee options, M&A or financing) being the other half.  For the second quarter of 2014, companies reduced their overall spending on buybacks, even as the average daily stock price rose 3.6%, resulting in fewer shares being purchased.  However, companies on aggregate also issued fewer shares, with the net change resulting in a lower share count and higher earnings-per-share (EPS).

"By reducing their share count, more companies are adding tailwinds to their EPS," says Silverblatt. "During the second quarter, 23% of S&P 500 issues reduced their year-over-year share count enough to push up their earnings per share significantly versus just shy of 20% during Q1 and 12% during the second quarter of 2013."

S&P Dow Jones Indices' data show that more companies continued to reduce their share count, with 295 doing so in Q2, up from 290 in Q1 2014 and 223 in Q2 2013. Significant changes (generally considered 1% or greater for the quarter) continued to strongly favor reductions, as 126 issues reduced their share count by at least 1%, up from last quarter's 123 issues and 90 issues for Q2 2013. Share reduction change impacts of at least 4% (Q2 2014 over Q2 2013), which can be seen in EPS comparisons, were 116 in Q2 2014, up from the prior quarter's 99, and Q2 2013's 62.

Silverblatt also comments that companies continue to increase their total shareholders' returns through regular cash dividends, as well as buybacks, even as the second quarter total expenditure declined from the first quarter. Over the year ended June 2014, buyback and dividend expenditures combined reached a new record high of $865.9 billion, with buybacks representing 61.6% of the total.

"If companies wish to continue the trend of decreasing share count (and therefore increasing EPS), they may need to spend more on buybacks," says Silverblatt. "Third quarter prices are averaging +3.9% and the continuing bull market conditions are putting more options in the money. While share count reduction is a management tool for EPS growth, most companies have shown a tendency to protect their EPS from dilution by at least covering their employee issuance."

On a sector basis, Information Technology continued to dominate the group, even as its buybacks decreased to represent 26.3% (down from last quarter's 30.9%) of all S&P 500 buybacks. Apple led the Index with its $5 billion stock repurchase program, down from its record $18 billion expenditure last quarter.