US companies are bolstering their earnings as the share buyback boom shows little sign of ending.

The proliferation of share repurchase activity has been an important source of support for US equities that loiter in sight of record territory.

US companies are sitting on huge cash piles and the subsequent lacklustre economic recovery has made them reluctant to spend on expanding operations. In turn, they have directed money to buybacks and dividends with pressure from activist shareholders advancing the trend. But critics have emerged to question whether focusing on shareholder return rather than new development may represent a drag on the economy.

Analysts forecast buybacks and dividends will top $1tn for 2015. The scale of repurchases is bolstering earnings: one in five S&P 500 companies has raised earnings by at least 4 per cent for each of the past five quarters according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Share buybacks offset options granted to employees, but companies in recent years have also bought back more than they need in order to protect earnings. While repurchases can boost earnings per share, they do not represent an increase in the profitability of the business — the same essential level of profits is just split among fewer shares.

For the first quarter, cash returned to shareholders — consisting of repurchases and dividends — is shaping up as a record $241.7bn, according to S&P Dow Jones Indices, eclipsing the previous high of $233.2bn achieved during the second quarter of 2007.

Dividends set a new record at $93.6bn, while companies, led by Apple, have reported buybacks of about $148bn, up from the previous quarter, but still shy of the record $172bn recorded for the third quarter of 2007.

Years of low interest rates have played a key role in the surge of dividends and buybacks.

“Companies have not re-leveraged their balance sheets despite the low cost of corporate debt and record high cash balances,” said Jonathan Golub, chief US market strategist at RBC Capital Markets. “As a result, companies have a huge opportunity to increase earnings per share further should they choose to tap into this capital cushion. With growth likely to remain hard to come by, we believe this is the likely path forward.”

Much of the money for dividends and buybacks has come from cash reserves bloated by fatter profit margins thanks to cost-cutting, but many companies have turned to bond markets to raise money cheaply for equity investors.

During April, Amgen sold bonds earmarked to fund buybacks while Oracle said in a regulatory filing that the use of proceeds from a bond sale might include stock repurchases and paying dividends.

Rock bottom rates have also made dividend payers attractive investments.

“We will soon be getting away from our addiction to low interest rates, but the addition to buybacks still appears to be growing,” said Mr Silverblatt.

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