Goldman Sachs highlights 'buyback aristocrats' in hunt for future outperformers

Goldman Sachs reports that a basket of "buyback aristocrats"—companies consistently reducing share counts—has significantly outperformed the equal-weight S&P 500, leading by an annualized 3 percentage points since 2012. While corporate capital allocation has recently prioritized AI-driven capital expenditures over buybacks, Goldman forecasts that buybacks and dividends will still account for 43% of S&P 500 cash spending by 2026. The firm anticipates a near-term increase in buyback activity as the current blackout period concludes, with Q4 typically seeing heightened corporate repurchases, as demonstrated by recent strong performance and buyback announcements from companies like Expedia, Citigroup, and 3M.

Analysis

Goldman Sachs highlights "buyback aristocrats," companies consistently reducing share counts, as a strategy outperforming the equal-weight S&P 500 by an annualized 3 percentage points since 2012 and 4 percentage points year-to-date. This consistent outperformance suggests that disciplined share repurchases are a strong indicator of management confidence and effective capital return, as evidenced by recent announcements from EPAM, Apple, and AMD.

While AI-driven capital expenditures have recently gained ground over buybacks, Goldman forecasts that buybacks and dividends will still constitute 43% of S&P 500 cash spending by 2026, totaling $4 trillion. This indicates that despite the shift towards capex and R&D (50% of spending), shareholder returns remain a significant corporate priority.

A near-term catalyst for increased buyback activity is the expected end of the earnings blackout period this Friday, allowing approximately 40% of companies to resume repurchases. Q4 is historically a strong period for corporates to meet year-end buyback targets, suggesting an uptick in activity.

Companies like Expedia (11% trailing buyback yield, +22% YTD), Citigroup (11% trailing buyback yield, +40% YTD), and 3M (6% trailing buyback yield, +29% YTD) exemplify strong earnings performance coupled with substantial shareholder returns through buybacks, reinforcing the "buyback aristocrat" thesis.

Key Decisions for Investors

• Consider allocating to companies with consistent share repurchase programs, particularly those identified as "buyback aristocrats," given their historical outperformance against the broader market.
• Monitor upcoming Q4 corporate announcements for increased buyback authorizations and execution, as the post-blackout period and year-end goals are expected to drive activity.
• Evaluate companies like Expedia, Citigroup, and 3M, which have demonstrated strong earnings and significant capital returns via buybacks, for potential investment opportunities.
• Recognize the evolving capital allocation landscape where AI-driven capex is growing, but buybacks and dividends are projected to remain a substantial component of corporate cash spending through 2026.