S&P: Stock buybacks more than doubled in in 2010

AP News
Posted: Mar 23, 2011 11:40 AM
S&P: Stock buybacks more than doubled in in 2010

America's biggest corporations more than doubled their repurchases of stock last year in another sign of confidence in the economic recovery.

Standard & Poor's said Wednesday that S&P 500 companies spent $299 billion last year to buy back their shares. That's up from the $138 billion spent in 2009, when the recession officially ended at midyear.

In the fourth quarter alone, share repurchases jumped 81 percent from a year earlier, to $86 billion.

Despite the surge, S&P said buybacks last year were still just half of their pre-recession level.

"The practice is not as deep as it was in the heydays of 2006-7, but companies are certainly back in the buyback business," S&P analyst Howard Silverblatt said.

Buybacks are up for the sixth quarter in a row. S&P said 270 of the companies in the S&P 500 purchased their shares during the fourth quarter, up from 251 in last year's first quarter.

Companies have increasingly been using cash built up in the recession to repurchase shares, moves that typically please investors. Stock buyback programs indicate companies have enough cash to take their shares off the market, which increases the value of the remaining shares and per-share earnings results.

Exxon Mobil Corp. spent the most to buy back its shares in the fourth quarter, with a total of $5.8 billion. No. 2 was Microsoft Corp. ($5.1 billion), followed by Wal-Mart Stores Inc. ($3.8 billion), IBM Corp. ($3.6 billion) and Coca-Cola Co. ($3 billion).

The buybacks at Microsoft and IBM helped make information technology the dominant sector for fourth-quarter buyback activity. Information tech companies accounted to 22 percent of all buybacks, down from the nearly 29 percent share in the third quarter. Information technology was the only sector to reduce its count of shares on the market for the year, which aided earnings per share growth.

Many tech companies have been in a good position to buy back shares because they fared better than most corporations through the recession. Tech companies entered the recession with relatively little debt, and have seen demand for their products hold up.

Led by Exxon Mobil's activity, the energy sector accounted for nearly 12 percent of all share repurchases in the fourth quarter, up from 6 percent in the third quarter.

Silverblatt expects buybacks to increase at a moderate pace through the rest of the year. "However, if investors begin to push companies to use their vast cash reserves to support stock prices and drive up their earnings, we could see significant buyback figures," he said.

S&P 500 companies held $940 billion in cash as of Dec. 31, up 13 percent from a year earlier and the highest level since S&P began keeping records in 1980.

President Obama in December met with 20 CEOs, urging corporate America to tap into cash holdings to hire and invest in their businesses. But many companies have been reluctant to take cash off the sidelines, fearing consumer demand for the goods and services they provide is still too meager to support more hiring or capital spending.

When companies build up cash from rising profits, their options include hiring more workers, investing in capital spending or acquisitions, buying back stock, and raising dividends paid to shareholders. Many companies have been opting for the latter two, which please shareholders.