The practice of corporations buying back their own stock may come under tighter regulation. But what would actually happen if companies faced restrictions around repurchasing shares?

“[I]nvestors must discount the headlines by the likelihood that these proposals become law and the time it would take for such laws to be written and passed,” Goldman Sachs’ David Kostin said. “Given the lack of specific policy proposals, it is difficult to quantify how potential legislation might affect corporate spending on share repurchases and how firms might be incentivized to redirect cash toward other uses.”

That said, there’s a “most obvious” alternative way to return cash to shareholders: cash dividends.

“Total cash return yields and payout ratios today are modestly above long-term averages, but the mix has shifted in favor of buybacks relative to dividends,” Kostin said. “Just as the rise in the popularity of buybacks in recent decades led to a decline in dividend payouts, a restriction on buyback activity would likely shift the pendulum back towards dividends.”

Buybacks hit record high despite scrutiny

Stock buybacks have come under criticism in Washington, D.C. Last month, Senate Minority Leader Chuck Schumer (D-NY) and Senator Bernie Sanders (I-VT) railed against the practice in a widely circulated op-ed and put forth legislation to curb buybacks, which the pair described as a "practice of corporate self-indulgence."

Senator Marco Rubio (R-FL) also plans to offer legislation to curb share repurchases. More recently, Senator Chris Van Hollen (D-MD) argued that company insiders should be prohibited from selling their own shares for a period of time after their firms announce buybacks.

Despite the unfavorable attention, the data continues to confirm that firms are buying back stock even more aggressively.

Preliminary data released on Monday by S&P Dow Jones Indices show that stock buybacks set another record during the fourth quarter of 2018, with S&P 500 companies repurchasing $223 billion worth of shares in that period, surpassing the prior record of $203.8 billion in the third quarter. The $223 billion figure is a 62.8% increase from the $137 billion spent on buybacks in the fourth quarter of 2017.

In total, S&P 500 companies put $896.4 billion toward buybacks in 2018, crushing the previous record of $589.1 billion in 2007.

“Buybacks were again favored over dividends in both the rate of growth and aggregate dollars spent,” senior index analyst Howard Silverblatt said in a statement. “Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts. Adding to the share reduction, and therefore the EPS impact, was Q4’s stock price decline, which permitted companies to buy even more shares for their dollars and reduce share count more efficiently.”