Friday, March 31, 2006

Share Buybacks Plus Dividends

There has been a surge in stock buyback activities in recent months. The Standard & Poor’s has announced that the share buybacks surged 57% in the forth quarter of 2005 compared to forth quarter of 2004. The S&P reports $103 billion worth of stock repurchases by S&P 500 companies in the forth quarter of 2005, compared to $66 billion in the forth quarter of 2004.

The repurchase activity is jumped so much that the combined dividend yield and buyback yield is now approaching 5% range. One has to wonder that if the recently reported record earnings are a byproduct of these share buybacks. As total number of shares go down the earnings per share increases even if the total earnings do not increase.

Three mega-cap companies GE, Microsoft and Exxon accounted for the 17.9% of the total buybacks. The information technology sector was responsible for the 28.5% of the buybacks even though it only represents about 15.3% of the S&P 500 index.

The data from S&P is listed below in the table. The most important column is the right most column. The buyback yield plus dividend yield is approaching 5% now!

YearMarket
Value
Billions
Dividends
Billions
Buybacks
Billions
Buybacks
+
Dividends
Billions
Buybacks
+
Dividends
Yield
12/31/2005$11,255$202$349$5514.90%
12/31/2004$11,289$181$197$3783.35%
12/31/2003$10,286$161$131$2922.84%
12/31/2002$8,107$148$127$2753.39%
12/31/2001$10,463$142$132$2742.62%
12/31/2000$11,715$141$151$2922.49%
12/31/1999$12,315$138$141$2792.27%

Data Source: Buybacks and impact of share count reduction

6 comments:

easy e said...

I'll tell you why. Companies want to get out of cash. Cash is loosing value and holding it is a losing proposition. It's the same reason funds are buying up gold. Cash is going to drop.

Anonymous said...

great chart!

Market Participant said...

The share buybacks are for the purpose of mopping up after the dilution caused by stock options.

If companies really wanted to return cash to shareholders, then they could pay or increase dividends.

Market Participant

The Dividend Guy said...

I have to agree with Market Participant - this is a trick to hide the dilution effect of stock options, There has been little value gained through buy backs. Companies really have no choice to do it so that their shares remain priced higher.

Doug Pedersen said...

Sadly, both market participant and the dividend guy are right - particularly in info technology. One of the best examples of this is CSCO, which repurchases billions of dollars worth of shares, but all of this repurchase activity barely reduces shares outstanding because of the options. Whenever I look at a company, options available and awarded is one of the most important footnotes I examine. If the company is simultanously issuing options and repurchasing, I deduct the dollars spent to counteract dilution from net income.

I like the chart, how would you change it to reflect the impact of dilution?

Winifred said...

Hi, can I ask you share the data of buybacks to me? As the website you referred is not available. Thank you. (I am a student and will need a general data analysis of share buybacks.)