Buybacks Hit $600 Billion

S&P companies have announced about $600 billion in stock buybacks this year. A major reason for the high level of buybacks is the low interest rate. The dividend payout ratio for blue chip companies is about 3 percent, but the same company can borrow at about 2.2 percent. This means that it is actually cheaper to buy back stock with borrowed money as this will save the company .8 percent per year. Of course, there is a widespread belief that the Federal Reserve will raise interest rates soon, which will lessen the appeal of buybacks funded with new borrowing.