NEW YORK ( MainStreet) — S&P 500 share repurchases increased 8.6% to $128.2 billion during the third quarter of 2013, up from the $118.1 billion spent on share repurchases during the second quarter of 2013, according to Standard & Poors.

"Just keeping up with the current bull market means that companies have to pay 25% more for the same number of shares they repurchased last year," said Howard Silverblatt, senior index analyst with S&P Dow Jones Indices. "However, we are starting to see excess buying where the repurchases outnumber the issuance, and therefore reduce the share count. The lower share count leads to higher earnings per share (EPS) and the market likes higher EPS."

Of the 394 issues which reported buybacks over the past year, 331 companies paid a cash dividend with the buyback portion growing faster than dividends.

"It's been a trend for more than a decade now that companies are buying back their stock in addition to or as a complement activity to increasing dividends partially because management views dividends as a commitment where a buyback can be a one time thing to do with excess cash they have on the balance sheet for the moment," said Ed Keon, a managing director and portfolio manager with Prudential.

In stock buybacks, a corporation repurchases its own stock by distributing cash to existing shareholders in exchange for a fraction of the company's outstanding equity. Cash is exchanged for a reduction in the number of shares outstanding and the company either retires the repurchased shares or keeps them available for re-issuance as treasury stock. Empirically, share prices go up if the number of outstanding shares goes down.

"That's one of the factors that helped the very large increases in share prices in 2013," Keon told MainStreet.

The S&P 500 closed last year with a return of 32.3%.

"Stock buy backs are a positive to the extent that people have stocks in their 401(k) plans or retirement portfolios and they have exposure to it," Keon said. "Buybacks can help those portfolios by driving stock prices somewhat higher."

On a sector basis, information technology maintained its dominance of buybacks despite Apple purchasing one-third less shares in the third quarter than it did in second quarter. Information technology accounted for 25.1% of all expenditures in the third quarter, down from 31.5% in the second quarter. Consumer discretionary saw the strongest increase in expenditures from the second quarter, up 65.7% third quarter 2007. Telecommunications saw its expenditure decrease, as AT&T reduced its buybacks to $1.9 billion from the $3.3 billion spent in the second quarter.

"As a practical matter, the stock buyback trend is likely to continue because CEOs and boards of directors like the flexibility that it brings to support the stock but at the same time not have the same commitment as dividends do to continue to provide that cash flow going forward," said Keon.