The Buyback Bonanza Continues To Pick Up Steam

 |  Includes: IVV, SPY
by: IndexUniverse

The S&P 500 once again burst through its previous record for stock buybacks among its component companies, with second-quarter buybacks rising to almost $158 billion. That is roughly $40 billion, or about 34%, more than the record of $118 billion, set in the first quarter of the year. It is also about $39 billion, or 35%, more than the level for the prior-year period.

S&P Senior Index Analyst Howard Silverblatt said that the high level of stock buybacks was fueled in part by IBM's (NYSE:IBM)huge buyback of $15.7 billion and other repurchases by Exxon-Mobil (NYSE:XOM) and Microsoft (NASDAQ:MSFT) of $7.6 billion and $7.2 billion, respectively. The top 10 companies for buybacks in the quarter accounted for more than $54 billion, or about 34%, of the quarter's total.

"Standard & Poor's expects buyback activity to continue at a high level for the remainder of 2007, but not at a record-setting pace, as corporations and investors remain enamored with the use of enormous company cash resources for stock buybacks," Silverblatt adds.

The buying spree has continued for 11 quarters so far for a grand total of $1.12 trillion in buybacks...a huge, huge number. For comparison, the entire market capitalization of the S&P 500 is only about $13.3 trillion.

What else are companies doing with their money? Well, companies have spent $1.24 trillion on capital expenditures and paid out $594 billion in dividends over the same 11-quarter time frame. The 12-month dividend and buyback yield was at 5.43%.

Whether this represents an efficient use of shareholder capital is an issue that is very much under debate. Many believe that buybacks favor management, as they boost the value of unrealized and unexercised options. In contrast, dividends put money in shareholders’ pockets.

Regardless, managers continue to buy back shares. That trend, it seems, may remain in place for some time.