In the fourth quarter of 2015, despite expectations that rising rates and an improving economy might reduce the interest in share repurchases, buybacks actually increased, with 25% of the S&P 500 reducing their share count by at least 4%, he said. "More companies participated, and more companies reached that 4% level, which we believe is significant because it changes your EPS and all your valuations," he said.

This size of reduction in a company's number of shares outstanding boosts its earnings per share (EPS), since it's dividing the same amount of earnings over fewer shares.

 Companies also continue to pay out high levels of dividends, with S&P 500 companies paying out 10% more in regular dividends last year than they did in 2014. Over the course of 2015, buybacks and dividends pushed total shareholder return to a record $954.6 billion.

Investors' Varied Views

As companies' executives and directors consider their strategy for returning capital to shareholders, the back and forth over buybacks could leave their heads spinning. A recent survey suggests that institutional investors are divided on questions related to buybacks, dividends, and how companies should deal with the large amounts of cash many have on hand.

J.P. Morgan surveyed three dozen large asset managers that, as a group, manage more than $5 trillion in assets and found they were evenly divided on the question of whether dividends and buybacks detract from companies' long-term prospects.

Forty-seven percent of the asset managers agreed that companies are making such distributions at the expense of long-term investment in the business. Another 47% disagreed, and 6% said companies are probably spending too much on capital expenditures and R&D, and should return more capital to shareholders.

The vast majority (82%) of the investors surveyed said improved earnings per share that resulted from organic growth are more valuable than higher EPS achieved as a result of buybacks.

Almost half said they prefer for companies to use both dividends and buybacks to return capital to shareholders, while 24% said they don't care which method companies use. Just 12% of the investors said they prefer buybacks, while 15% prefer dividend payments.

Marc Zenner, co-head of corporate finance advisory at J.P.Morgan, said he was surprised so many of the survey questions failed to produce a clear majority view from the asset managers.

"There are some portfolio managers who are totally focused on dividends and believe buybacks are a waste," Zenner said. "There are others who believe firms should never do dividends and only do buybacks.

"The differences in opinion on many of these questions are sufficient that you understand why it's so challenging for many executives to make these decisions," he added. "You can't have 10 one-on-ones with portfolio managers and come out of there and say, 'I've got the same answer from nine out of 10 investors.' That's not going to happen."

Zenner, pictured at left, argued that companies that make distributions to investors, whether it's through dividends or share repurchases, perform better than those that don't.

"The U.S. is a market that distributes a lot more than Germany or Japan, and by and large U.S. firms have outperformed German companies and Japanese companies," he said. And among U.S. sectors, the oil and gas industry has focused more on capital investments than distributions to investors in recent years, yet it has underperformed, he said.

"If you look at the facts and do the analysis, it supports the idea that firms tend to distribute when they're doing well," he said. "It doesn't support arguing that firms have been forgoing good opportunities for investment."

Zenner recommended that, at the margin, executives and boards "should have a perspective on value when they think about buybacks, and when they think about dividends they should have a perspective on the sustainability of the dividend and make sure that any dividend level they choose should be sustainable through good and bad times."

Higher Rates, Market Slide

The surge in buybacks is partly a reflection of business conditions that include the quantity of cash companies have on hand; the low interest rate environment, which makes it cheap for companies to borrow to finance repurchases; and the economy's slow recovery from the recession, which has muted interest in capital investments.

Rising rates are one factor that could have an effect on the pace at which companies return capital to their shareholders. The J.P. Morgan survey showed 62% of the asset managers agree that companies which pay a dividend trade at a premium compared with those that do not. But Zenner said that view could change if rates were at higher levels.

The J.P. Morgan survey also showed that 36% of the asset managers believe a 2% dividend yield makes a stock attractive, while 42% view a 3% dividend yield as attractive. "Obviously if the 10-year Treasury was [yielding] 5%, then a dividend yield of 2% or 3% would not be meeting the threshold of attractiveness the way it is today," Zenner said.

Silverblatt sees little on the horizon that would put a dent in buybacks, noting that S&P 500 companies are sitting on $1.32 trillion in cash. To the extent that companies borrow money to finance their repurchases, interest rates remain low. "Eventually interest rates will go up, and companies will have to look at it again," he said.

The only thing that could discourage buybacks near-term would be a "major market correction," Silverblatt said. "If markets are going down, companies will get more nervous. They will look to save cash."

Shareholder Resolutions

As proxy season rolls around, the debate about buybacks has also resulted in some shareholder resolutions.

Three institutional investors—Domini Social Investments, the AFL-CIO, and Amalgamated Bank—have submitted resolutions asking that companies filter out the effects of stock buybacks when they are calculating the performance numbers that determine executive pay packages.

Rajeev Kumar, senior managing director for corporate governance and research at Georgeson, a proxy solicitation and corporate governance consulting company, cited "a handful of these proposals."

Kumar noted that the proposals aren't asking the companies not to do buybacks, they're only trying to exclude the impact of buybacks on performance metrics. "Having said that, there is some language in the supporting statement that gets into the companies' capital allocation decisions, whether by doing share buybacks they have missed out on investment opportunities, and whether they are being judicious on how they are doing their share buybacks," he said.

Kumar said there's talk that ISS, one of the big proxy advisers, could come out in support of the buyback resolutions. He noted, though, that compensation proposals generally receive only "a middling level of support."

Morever, this is the first year that resolutions on buybacks and executive pay have been proposed. "You see that in the first year of proposals, they may not do as well," Kumar said.