FTSE 100 share buybacks on track to reach all time high in 2022

FTSE 100 firms are now planning £37bn of share buybacks this year, compared to the prior record of £34.9bn in 2018, according to data from AJ Bell.

AJ Bell investment director Russ Mould said BP's $2.5bn buyback was in addition to the firm's $1.6bn outlay on buybacks from the beginning of this year, pushing it to fourth place among buyback announcements from FTSE 100 members in 2022.

BP is now also solidly third place on total buybacks since 2000, having issued £35.6bn total. This is only surpassed by Shell (£39.5bn) and Vodaphone (£39.1bn).

Mould explained: "This buyback largesse complements analysts' forecasts for aggregate dividend payments from the FTSE 100 of £81.2bn (and that is before any special dividends). The dividends equate to a forward dividend yield of 3.9% and the buybacks add a further 1.8% to that, to take the cash yield from the FTSE to 5.7%."

Mould added the FTSE 100 now had the second-best performance among major indices worldwide in 2022 so far, "trailing on Brazil's modest gains, in local currency terms".

"Those planned cash returns may therefore be helping to persuade investors to stick with UK equities rather than look elsewhere, although the danger remains that buyback plans are revised and dividend forecasts prove over-optimistic, should a recession or other unexpected development strike," he stated.

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As there is less stigma when a buyback is cancelled compared to a dividend cut, buybacks are more likely to be subject to revision if the market begins to slow down. For example, 2020 saw more than £10.3bn in scrapped plans for buybacks when the pandemic began.

Mould also noted that "buybacks tend to be pro-cyclical," reaching their peak before the Global Financial Crisis in 2006-2007.

"Buybacks reached their next zenith in 2018 and buyback activity peaked that year, too, so management teams' record of buying high rather than low may give some investors pause for thought as to whether buybacks are a potential contrarian indicator, especially in light of global equities' spring woes," he added.