Last August, a little section of U.S. President Joe Biden’s much-touted Inflation Reduction Act caught the attention of investors. It introduced a 1% tax on stock buybacks.
Most companies and investors shirked it off. As the tax rate was so low, the consensus was that it was neither going to deter companies from offering buybacks, nor would it take a significant bite out of the perk that had, up until now, been a tax-free bonus. The only warning that was raised was that now that buybacks could be taxed, the prospect of raising that tax in the future looms.
Fast forward to this week, in Canada, where the federal government last Thursday unveiled its Fall Economic Statement. It included plans to introduce a 2% tax on stock buybacks. This new tax will not go into immediate effect, however. It will be introduced in 2024.
But let this be a warning to North American investors: Buyback taxes are the new thing. And taxes never go down. They only go up.
In general, buybacks simply push the price of a company’s shares upward while at the same time improve a few profitability measures by dropping the number of shares floating around. They, of course, also are viewed by some as an easy way to affect the stock price in a way that favors corporate executives who usually own or control a lot of the shares. Another reason they are popular, of course, is that investors like the fact that their share holdings increase in value as a result. But they do nothing that effectively changes the company’s actual performance.
As noted last month, share buyback activity is on the rise.
So here are a few stats: S&P 500 companies spent $881 billion last year on buybacks. That’s an increase of just under 70% from 2020. It is also about 10% more than in 2018, when buyback action hit a record.
Tech firms have embraced the practice, offering some of the biggest buyback programs in 2022, with Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) leading the pack. But it is not just tech. Companies like Lockheed Martin (NYSE:LMT) are doing it, too.
According to Bloomberg, the S&P 500 Buyback Index, which tracks S&P companies with the highest buyback ratios, is up 231% over the past 10 years and 692% over the last two decades.
All to say, now that buybacks are a regular thing, expect taxing buybacks to become more of a thing.
All atwitter @ Twitter
Employees at Twitter were ignoring their own Twitter feeds this past week. All eyes were on their email accounts.
That was the state of affairs at Twitter headquarters this past week after the platform’s new owner, Elon Musk, sent an email to employees last Thursday saying staff will be notified by email whether they will be laid off or whether their jobs are safe, according to a report by NBC News.
If an employee’s job was secure, they were notified via their work email account. If they were one of about half of the workforce who was laid off, they were notified via their personal email accounts.
The move to cut staff, which aimed to eliminate up to half the workforce, has already sparked a lawsuit. Filed in federal court in California, five former/current employees are claiming the company has failed to provide adequate notice as prescribed by law in the state for this latest round of layoffs.
There was very little work getting done yesterday at Twitter as laid-off workers started posting their pink slips on – yes, wait for it – Twitter.
According to the NBC report, one employee described the hysteria this way:
“It’s total chaos, house melting down, everyone looking towards this email.”
Sounds like if you have been working at Twitter, not only are you panicked, possibly unemployed, but you seem to have lost your ability to communicate without abbreviating your statements.
Top Winners And Losers Of The Week
Again, for all those out there who are keeping score, here are the top gainers of the past week:
On the S&P 500
- ABIOMED Inc (NASDAQ:ABMD): +44.92%
- Wynn Resorts (NASDAQ:WYNN): +21.46%
- Under Armour Inc A (NYSE:UAA): +13.25%
- Hologic (NASDAQ:HOLX): +12.4%
- Under Armour Inc C (NYSE:UA): +11.88%
On the NASDAQ Composite
- ABIOMED Inc (NASDAQ:ABMD): +44.92%
- Huazhu Group (NASDAQ:HTHT): +26.16%
- LSI Industries Inc (NASDAQ:LYTS): +24.73%
- Trip.com Group Ltd ADR (NASDAQ:TCOM): +22.65%
- Insulet Corp(NASDAQ:PODD): +22.48%
And the biggest losers:
On the S&P 500
- Lincoln National (NYSE:LNC): -36.33%
- Catalent (NYSE:CTLT): -35.92%
- Fidelity National Information Services Inc (NYSE:FIS): -29.13%
- Global Payments Inc (NYSE:GPN): -22:21%
- Zebra Technologies Corporation (NASDAQ:ZBRA): -19.94%
On the NASDAQ Composite