Sunday, July 30, 2006

companies buying back shares

[9/19/07] Fools duel dividends vs. buybacks

[5/2/07] Studies found that the stocks of the companies that buy back 5-10% of their total shares on average gain 6.8% more than the companies that do not buy back shares. Dilutions from the increases in the number of shares outstanding result in poorer stock performance over long term.

[12/18/06] At well-run companies, buybacks benefit shareholders by increasing dividend growth potential. But a dollar spent on buying back shares is not the same as a dollar paid out in dividends. For those seeking income, buybacks are far less attractive than dividends.

[12/14/06] On a purely theoretical level, it shouldn't make a big difference whether or not a company pays dividends. If earnings are distributed to investors in the form of dividends, the recipients must choose how to reinvest those payments. Many investors participate in dividend reinvestment programs, which automatically use any dividends they receive to purchase additional shares of stock. On the other hand, if a company retains its earnings instead of paying a dividend, the value of the company should be higher by the amount of cash the company kept. The company can reinvest the money in its business operations or perform capital-structure transactions, such as paying down debt or repurchasing stock.

In reality, however, many investors prefer dividend-paying stocks, and many companies have responded to that preference by continuing to pay substantial dividends. Part of that preference may be simply because dividends represent real money, rather than an abstract paper value.

[12/5/06] Stock buybacks are huge.

Through the first nine months of this year, big U.S. corporations spent a record $325 billion snapping up some of their outstanding shares, according to Standard & Poor's. That's up 33% from the same time last year, and more than double the $130 billion spent on buybacks during the first nine months of 2004.

To put those figures in perspective, consider that total operating earnings for S&P 500 companies through the end of the third quarter was $590 billion. In other words, the biggest companies spent more than half their earnings power retiring their shares.

[12/3/06] Dueling Fools: dividends vs. buybacks

[9/29/06] Share repurchases can be great value creators for investors -- if done for the right reasons. But be careful, because some repurchases are undertaken just to offset option dilution.

[8/25/06] Standard & Poor's Corp. of New York is warning investors about distortions in corporate earnings due to high levels of treasury stock and cash held on balance sheets.

Yesterday, S&P announced that share buybacks in the second quarter had reached a record $116 billion for S&P 500 companies.

For 20% of these firms, the reduced number of shares outstanding caused a "significant boost to earnings-per-share" in the quarter, said Howard Silverblatt, S&P senior index analyst, in a statement.

Although helpful for per-share earnings, share buybacks combined with large amounts of interest-earning cash could cause problems in predicting results for many companies, the research firm said.

[8/20/06] Many Americans need to look for ways to curb their spending. Big U.S. companies have the opposite problem.

The piles of cash and stockpile of repurchased shares at these companies have hit record levels and continue to grow along with corporate earnings, creating challenges for the executives who must decide how to allocate all that capital.

While some investors carp about managers hoarding cash rather than building their businesses, data show companies have in fact been reinvesting in themselves. Some are also acquiring other companies, although these deals are often smaller in scope than the takeovers executed in the go-go late 1990s, as executives don't want to undertake expensive deals that could hamper investor returns for years to come.

The cash figures are also becoming so large that they are skewing some of the yardsticks used to gauge corporate performance. For example, with more companies seeing bigger portions of their bottom line accounted for by interest income, it becomes harder for Main Street investors to gauge how well some corporate managers are running core operations.

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[7/30/06] The companies in the Standard & Poor's 500 index have reported 16 straight quarters of double-digit earnings growth. If upcoming reports show that this spectacular growth continued in the second quarter, earnings per share may be pushed into double digits not because of stellar performance, but thanks to share buybacks and higher interest rates.

Share buybacks have become a big-money endeavor. The cash-laden companies in the S&P 500 spent 45 percent of their capital expenditures on stock buybacks last year, which was especially significant because capital expenditures were on the upswing. Thanks to buybacks, the S&P 500 companies now hold 10 percent of their market value in company-owned stock, according to Howard Silverblatt, senior index analyst at S&P. Companies have never bought back this much stock before, Silverblatt said.

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