By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- Corporate share buybacks, which have risen to record amounts along with market highs, may begin to lose their luster for investors as an earnings booster as the end of cheap debt nears and fundamental growth gets more scrutiny.

Stocks sold off last Wednesday in reaction to a possible hike in the near-zero fed funds rate in about a year's time. At a Federal Open Market Committee news conference, Federal Reserve Chairwoman Janet Yellen said rate hikes could begin "around six months" after the Fed closes out its bond purchase program, which is expected to end in about six months. That low rate of borrowing has encouraged more corporate borrowing, which in turn has made it into dividends, debt refinancing, and share buybacks.

On the week, the Dow Jones Industrial Average (DJI) finished up 1.5%, the S&P 500 index (SPX) closed up 1.4%, and the Nasdaq Composite Index (RIXF) finished 0.8% higher, even though all three indexes closed lower on Friday.

The amount spent on share buybacks in the past fourth quarter is expected to reach a new high, according to an estimate from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Verified figures are expected this week.

But those levels of spending aren't likely to continue. Investors are becoming more likely to reward companies that are increasing earnings and sales in tandem, and less likely to reward companies that have been using buybacks for earnings support.

"People are starting to wise up: McDonalds and IBM have done [buybacks] for years, but shares have stagnated," said Paul Nolte, portfolio manager at Kingsview Asset Management. "People want to see real earnings, real sales."

Share buybacks for S&P 500 companies are estimated to have reached $129.39 billion for the fourth quarter on operating earnings of $250.05 billion, according to S&P Dow Jones Indices data.

Meanwhile, corporations are still issuing more than $200 billion in debt a quarter, and have been doing so since the first quarter of 2012, hitting a peak of $298.79 billion in the fourth quarter of 2012, according to data from Dealogic. At the beginning of 2012, the benchmark 10-year Treasury note (10_YEAR) was yielding just under 2% and fell as low as 1.39% that year, compared with the current yield of 2.75%.

That record amount, however, appears to have purchased fewer shares, said S&P's Silverblatt in emailed comments. With S&P 500 companies spending $128.16 billion on share buybacks in the third quarter, the S&P 500 index also rose 10% during the fourth quarter. More telling from an earnings standpoint, companies also appear to have issued fewer shares, resulting in lower share counts and higher earnings per share, Silverblatt added.

Buybacks may have peaked, said Brian Belski, chief investment strategist at BMO Capital Markets, but don't expect them to disappear altogether seeing we're still a very long way from a 5% fed rate. Buybacks will still be part of the earnings toolbox for corporate executives, but investors are going to need to start seeing both sales and earnings growing in tandem, he said.

Executives are still playing it conservatively by keeping expectations low, and analysts are likely to play along, Belski said.

That's apparent in the outlook for the coming earnings season. First-quarter earnings are expected to be flat, down from an estimated 4.4% growth rate back on Dec. 31, because of downward revisions, according to John Butters, senior earnings analyst at FactSet.

Profit warnings for the first quarter remain high with 84% company earnings outlooks falling below the Wall Street consensus. Tech and consumer discretionary companies make up a large number of those negative earnings forecasts: 24 out of 32 tech companies are guiding downward, along with 21 out of 23 consumer discretionary companies guiding below the consensus.

A better metric of corporate optimism is reflected in dividend actions, Belski said.

"We believe that companies increase dividend payments only if they think things are going to get better in the future, given the stigma associated with dividend cuts," Belski said in a recent note.

A handful of companies report earnings this week including Walgreen Co.(WAG), Carnival Corp.(CCL), Accenture PLC(ACN), Red Hat Inc.(RHT), Paychex Inc.(PAYX), and GameStop Corp. (GME) First-quarter earnings season won't be in full swing until mid-April when J.P. Morgan Chase & Co. (JPM) reports.

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