As Will Becker, analyst at Behind the Numbers, shows in a new report to clients on the trend of increased share buybacks, when company management buys back its own stock, it tends to do it when market valuations are high, not low. And that’s exactly what’s happened over the past year as the S&P 500 repeatedly reached new heights.

According to data assembled by Becker, S&P 500 companies increased the total dollar amount of share buybacks they engaged in by 28.5% year-over-year in the fourth quarter of 2013, to $126 billion. “While this represents a sequential increase of just 1.7% from 3Q13, S&P 500 companies have been more active over the trailing twelve months ended 12/31/13 than in any period since the financial crisis,” he writes.

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A few more stats from Becker’s report:

• Eighty-six percent of the companies listed in the S&P 500 bought back shares in the 12 months ended September 2013.
• More companies in the S&P 500 today buy back shares than pay dividends
• Instead of buying back shares when stocks are cheap, management tends to buy its own shares when they are overvalued. Writes Becker, “One need only to look back to the 2006 and 2007 market heyday when companies spent more than $2 on buybacks for every $1 they spent on dividends. However, by mid-2009 when stocks prices were in the proverbial gutter, buybacks shrank to just 50 cents for every dollar of dividends.”

Defenders of share buyback schemes often point to the fact that a buyback can help companies and investors reduce their tax liabilities. For instance, a company can borrow money to repurchase shares and deduct the interest paid on debt. At the same time, some investors would rather their investments appreciate through share buybacks than receive a dividend because they must immediately pay taxes on dividends but not gains on stock they haven’t sold.

Others argue that share repurchases should be a natural step in a company’s lifecycle. Firms competing in declining industries with few good capital investment options must find a way to return profits to their shareholders, and share buybacks are an effective way to wind down a struggling company in a way that keeps shareholders and executives happy.

But what about companies operating in arguably thriving industries, like pharmaceuticals, that will only grow more profitable as the population within wealthy nations ages? In his report, Becker fingers pharma company Pfizer (PFE) as one such firm with few good excuses for buying back so many of its shares. Pfizer has been hit hard by the expiration of patents on two of its best-selling drugs, Lipitor and Viagra, in recent years, and it has been, according to Becker, “scrambling” to replace that revenue with cost cutting, acquisitions, and restructuring of its R&D efforts.

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But instead of pouring its profits into developing new drugs, Pfizer has been busy buying back huge amounts of its own stock — $16.3 billion worth in 2013. Becker argues that the company’s move may have as much to do with executives hoping to reduce the total number of shares in circulation so that they can meet certain stock-price based performance metrics as it has to do with the belief that Pfizer shares are undervalued. Writes Becker:

Looking at PFE‘s annual incentive program, a pool is funded based on the company’s performance on three financial metrics: total revenue, adjusted diluted earnings per share and cash flow from operations … largely with the aid of its record share repurchase activity, PFE managed to exceed the 2013 target goal fro adjusted diluted EPS, while producing slightly below-target performance for its revenue and cash flow metrics.

While Pfizer didn’t have a particularly stellar 2013, its executives still received healthy bonuses, in part because Pfizer surpassed its goals for growth in earnings per share, a goal that wouldn’t have been met without such a concerted effort to keep the total number of shares outstanding low. Meanwhile, Pfizer has reduced its investment in research and development as a percentage of revenue every year since 2007 — which can’t bode well for the company’s prospects of launching the next Lipitor or Viagra.

Becker believes Autozone (AZO) is also a bit too fond of share buybacks and that its CEO William Rhodes stands to be a chief beneficiary of the strategy, as “a material amount of his future compensation is tied to diluted EPS targets.” Like Pfizer, the money to buy back shares has forced Autozone to reduce investment elsewhere in the company as it has recently reported a cash flow deficit and has had to take on hundreds of millions of dollars in new debt.

Becker also points to companies like Sysco (SYY), Jarden (JAH), and Brinker International (EAT) as firms buying back for the wrong reasons, but there are surely many more out there. And as the stock market continues to rise, investors should be ever more wary of investing in companies that would rather buy back shares of their own stock at high valuations than invest in its business, the ostensible generator of capital gains.