What advisors need to know about S&P 500 buyback aristocrats

ProShares launched the ProShares S&P 500 Buyback Aristocrats ETF (BUYB) to track S&P 500 companies that have reduced shares outstanding for at least 10 consecutive years. The firm and data provider VettaFi discussed the index and buyback trends in a webcast titled S&P 500 Buyback Aristocrats: Quality Through Consistency. Presenters included Cinthia Murphy, director of research at VettaFi; Simeon Hyman, global investment strategist at ProShares; and Kieran Kirwan, director of investment strategy at ProShares.

The index requires a net reduction in shares outstanding for 10 straight years to exclude firms whose repurchases only offset stock issued for employee compensation. Kirwan described the screen as binary: a company either meets the decade-long test or it does not. The index is equally weighted, holds 68 companies and rebalances quarterly.

ProShares reports the index has an aggregate net debt-to-EBITDA ratio of about 1.4 and a higher return on equity than the broader S&P 500. Hyman noted that share buybacks now exceed dividend payouts on an annual basis and that the 1% excise tax on buybacks under the Inflation Reduction Act, effective in 2023, has not halted the trend.

Hyman questioned the claim that current buybacks are mainly financed with debt, citing low net debt-to-EBITDA ratios across the S&P 500 and saying many repurchases are funded by strong profitability. He said market strength has broadened beyond large-cap momentum, with equal-weighted S&P 500 returns improving and gains extending into mid- and small-cap stocks. He also pointed to higher capital spending tied to artificial intelligence in areas such as semiconductors and infrastructure while noting overall U.S. capacity utilization remains at levels that have not pushed inflation higher.

Panelists discussed the relationship between buyback and dividend strategies. Only 13 companies appear in both the Buyback Aristocrats Index (68 constituents) and the Dividend Aristocrats Index (69 constituents), creating different sector mixes. Dividend-focused names are more concentrated in consumer staples and industrials, while buyback-focused companies include technology and capital goods firms such as Apple and Applied Materials. Speakers said the two approaches can be held together in a portfolio.

The ETF carries a 0.39% expense ratio and provides rules-based exposure to companies that have reduced shares outstanding for at least 10 consecutive years. Panelists emphasized that the index selects companies based on sustained, long-term reductions in outstanding shares rather than on one-time repurchase announcements.