Stock Buybacks: What's Causing the Decline?

For the third quarter of 2009, stock buybacks for S&P 500 companies declined to $89.71 billion versus $171.95 billion in the third quarter of 2007. Dividends were actually slightly higher coming in at $61.44 billion versus $61.21 billion in the third quarter of 2007.

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Companies appear to be more cautious with their cash as buybacks and dividends decline or remain flat, respectively. In Wal-Mart's (WMT) November conference call (pdf file), the company announced it was suspending itsbuyback program noting:

During the third quarter, we repurchased approximately $1.3 billion of our stock, which represents approximately 21.4 million shares. As we noted during the analyst meeting, we stepped back on share repurchases in early October. We believe it is more prudent to take a pause while the financial markets settle down (emphasis added). Year to date, we have purchased almost 61.5 million shares. Under our current $15 billion share repurchase authorization, we have spent almost $10 billion to repurchase approximately 203.6 million shares.

In the S&P press release, Howard Silverblatt, Senior index Analyst at Standard and Poor's noted :

Starting in the fourth quarter of last year, companies began to retreat from stock buybacks. Year-to-date, Standard & Poor’s data shows that stock buybacks are coming in at $156 billion less than this time last year.

Cash levels for the third quarter of 2008 were near an all-time high, so it’s not that companies can’t fulfill buyback programs. They are instead choosing to hold onto the cash, unsure of what the near-term may bring.

The below table details the buyback trend by S&P 500 sector going back to the third quarter of 2007.

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Data Source:

• S&P 500 Stock Buybacks Continue At Lower Levels; Retreat 48% in Third Quarter (pdf file), Standard & Poor's, By: Howard Silverblatt & David R. Guarino, December 10, 2008.

Comments

[malach hamo...:]

We are in the midst of a liquidity crisis -- Cash is King!!

Many strong companies are holding on to cash as they watch credit markets dry up and are unwilling to risk not being able to roll over debt.

The absolutely strongest firms are trading at less of a discount; for them, holding on to cash gives them the ability to swoop in and buy some complementary firm on the cheap or to use accelerated payment terms and other credits to suppliers to achieve lower prices.

When cash is king,it's a shame to waste it on shareholders.

2008 Dec 11 06:34 AM

[SivBum:]

Cost of money has been up. HP has issued $2b debt at above 6% last week. Apparently CFOs don't think the buy back is worthwhile as their stocks sink lower by the week. Afterall, they had been buying and buying over the past few years and their market values have gone down instead of up or even.

2008 Dec 11 10:57 AM

[honestbob:]

Management likes to get most of their compensation in stock options and appreciation rights that can be sold and the profits taxed as long term capital gains rather than regular income. So buying back stock when the market is strong and you can push the price even higher benefits the executives. On the other hand, buying back stock when the price is below their exercise price does nothing to benefit the executives. Think about it, why were most buyback programs done when the prices are high, not when they are low? If the executives and their boards were not all in this deal together maybe they would quit buying high and selling low.

2008 Dec 11 11:05 AM

[Kunst:]

Isn't it interesting how many companies wanted to buy their own shares at record high prices, and now don't want to buy them at half that level.

2008 Dec 14 01:33 AM