4 Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes: Part VI

 |  Includes: AAPL, AN, DFS, SWY
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of 18 March till 23 March.

While consumers and governments across the world are strapped for cash, corporations have plenty. Rather than signal long-term trust and pay more generous long-term oriented dividends, many of them have adopted share repurchases to buy back their own stock. Investors welcome these announcements as they boost earnings per share and provide a lot of support for the share price during the repurchase periods.

Autonation (AN) announced a $250 million additional repurchase program enough to retire 5.4% of outstanding shares. The automotive retailer made the announcement after shares have consolidated in the $34-$40 trading range over the last year. The company has already retired 18% of its shares over the last couple of years, and the announcement is welcomed by investors who receive no dividends.

Discover Financial Services (DFS) announced a new $2 billion repurchase program, enough to retire some 11.7% of its outstanding shares. The banking and payment provider announced the program after shares hit multi-year highs around $34 a share after publishing strong first quarter results. Besides the relative large buyback, shareholders also receive a 1.2% dividend yield.

Safeway (SWY) announced a $1 billion buyback program. The food and drug retailer announced the sizable plan, sufficient to retire 17.6% of its outstanding shares, when the stock trades around multi-year lows of $20 per share. The supermarket chain already retired over 21% of its outstanding shares in a string of buybacks over the last couple of years. The company has set a very shareholder friendly strategy paying a 2.7% dividend yield.

Apple (AAPL) announced a $10 billion buyback program, enough to retire a mere 1.7% of its outstanding shares. The announcement is made after shares trade at all time highs and have already returned 47% year to date. The tech giant also announced a quarterly dividend of $2.65 per quarter, providing its investors with a dividend yield of 1.8%.

During the last week, these four companies described above announced repurchase plans totaling $13 billion, which is little over one time their combined annual dividend payment, which comes in at around $10 billion. This ratio is obviously massively influenced by the announcements of Apple on Monday.

Cash-rich companies still refuse to significantly raise long-term dividends. Rather, they use one-time repurchase agreements with far less signaling power as a dispersion tool of excess cash to their shareholders.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.