DEFINITION of 'S&P 500 Buyback Index'

An index designed to track the performance of the 100 S&P 500 stocks with the highest buyback ratios over the past 12 months. The S&P 500 Buyback Index is equal-weighted and rebalanced quarterly, with the rebalancing reference dates occurring on the last trading day of each calendar quarter. Index changes are effective after market close on the third Friday of the month after the reference date.

BREAKING DOWN 'S&P 500 Buyback Index'

The S&P 500 Buyback Index ranks the S&P 500 members in descending order of their buyback ratios every quarter, and includes the top 100 in the Buyback Index. The Index gives investors an avenue to invest in companies that are aggressively buying back their own shares. A share buyback is a compelling route for a company to generate value for its shareholders, since a buyback contracts share float, improving per-share measures of profitability and cash flow like EPS and CFPS.  

In 2013, share buybacks increased to multi-year highs as companies were flush with cash on account of record earnings and the ability to borrow at interest rates near historic lows. As of December 2013, the biggest sector contributors to the S&P 500 Buyback Index were consumer discretionary (22%), information technology (19%), financials (18.5%) and health care (15.5%). These four sectors together constituted three-fourths of the Buyback index.

The positive reception by investors to share buybacks can be gauged by the outperformance of the S&P 500 Buyback Index, compared to the S&P 500. 

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RELATED FAQS
  1. Where can I find current data on stock buyback offers?

    Learn how to find information about stock buyback offers, understand the different methods of buybacks and why some criticize ... Read Answer >>
  2. What does a buyback signify about a given company's financial health?

    Learn about stock buybacks and what they can mean about a company's financial health depending on the motivation behind their ... Read Answer >>
  3. Why are stock buybacks so controversial?

    Understand the nature of stock buybacks and why many investors and analysts consider them to be controversial despite their ... Read Answer >>
  4. What companies will typically exercise buybacks, and why do they do it?

    Learn about what types of businesses typically execute stock buybacks and what this maneuver can indicated about a business' ... Read Answer >>
  5. Why does executive compensation facilitate when a company buys back its stock?

    Learn about how companies use stock buybacks in order to facilitate executive compensation and why the practice is very controversial. Read Answer >>
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    An odd-lot buyback occurs when a company offers to purchase shares of its stock back from people who hold less than 100 shares. ... Read Answer >>
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