Of
note, one of the charts in the defensive report had the following informative
summary on the history of buybacks, in which Goldman explained that "in the past buybacks were
not illegal [ZH: they were illegal prior to 1982] but were typically avoided because US companies feared government
charges of market manipulation." As a result, for decades US companies returned cash to
shareholders almost exclusively via dividends, and from 1880 to 1980, the
dividend payout ratio averaged 78% of earnings (companies also had the option
to repurchase shares via tender offers, in which they would buy a certain
amount of shares at a pre-determined price/time, however the price moving impact of such
operations was virtually nil).
Then, everything changed in 1982 with the passage of
Rule 10b-18, which provided companies a safe harbor against charges of market
manipulation when repurchasing their shares.
In short, buybacks were
illegal until 1982 for a reason - market manipulation - and then they gradually became
mainstream, with stock buybacks and dividends rising to 90% of the
cumulative payout ratio of S&P 500 earnings in the 2002-2018 period. The
cherry on top: in
2019, Goldman forecasts companies will spend a record $940 billion on buybacks
(with $1.1 trillion in buyback announcements) up 16% from the prior record hit
in 2018.
