Cash Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes - Part XII

 |  Includes: BYI, CVC, EFX, HLF, MCK, MDRX, NUS, UPS
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of April 30 till May 4, which turned out to be a very active week in terms of buyback activity.

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.

McKesson (MCK) the distributor of drugs and health and beauty products announced a new repurchase program of $700 million, sufficient to retire 3.3% of outstanding shares at the current price level. The announcement comes after shares hit at an all time high as shares have returned 15% year to date already after the company acquired Drug Trading Company for $920 million Canadian Dollar. The announcement is welcomed by investors who receive a mere $0.20 quarterly dividend for an annual dividend yield of 0.9%. The company has been retiring shares at a steady pace in recent years.

Allscripts Healthcare Solution (MDRX) the provider of clinical software applications for hospitals announced a $200 million addition to its previous repurchase agreement. Shares plunged recently after the company lowered its full year revenue and profit guidance. The company took advantage of the 44% plunge in the share price year to date and doubled its repurchase authorization to $400 million, sufficient to retire some 20% of outstanding shares.

Atmel (ATM) the designer and developer of microcontrollers announced a $200 million buyback program, sufficient to retire 5.9% of shares outstanding. Shares have fallen 12% during this week as the company lowered its second quarter revenue guidance to a growth of 2-6% per annum while analysts were expecting the company to guide for revenue growth of 7% for the quarter. Shares in the company have more than halved compared to its peak in 2011 but still trade far above levels in 2009.

Nu Skin Enterprises (NUS) the global direct selling company which sells anti-aging products and nutritional supplements announced a $250 million repurchase program which comes in addition to its current program under which there is still $80 million left under authorization. Combined, the programs will be sufficient to retire 11.9% of outstanding shares. Shares have fallen 15% over the last week as hedge fund manager David Einhorn enquired about the accounting practices of its competitor Herbalife (NYSE:HLF).

Equifax (EFX) the provider of information solutions announced a $200 million repurchase program which is sufficient to retire 3.6% of its outstanding shares. The announcement comes after shares trade around all time highs of $46 and years in which the company has steadily been repurchasing its own shares. The announcement is welcomed by investors who currently receive a $0.18 quarterly dividend for an annual dividend yield of 1.6%

Cablevision Systems (CVC) the cable television operator announced a $500 million addition to its repurchase program. Shares have fallen 10% over the week after the company reported a 45% decline in net income, driven by the spin off of AMC Networks. The plan is sufficient to retire 14.0% of outstanding shares at the current price level, as shares have hit the lowest levels in a decade. Shareholders currently receive $0.15 in quarterly dividends for an annual dividend yield of 4.6%

United Parcel Service (UPS) the world's largest package delivery company announced a $5 billion repurchase program. The program is sufficient to retire 6.7% of outstanding shares. Despite the $6.8 billion acquisition of TNT Express, UPS remains committed to return cash to its shareholders by means of dividends and share repurchase plans. UPS plans to buy back $1.5 billion in stock during 2012.

Bally Technologies (BYI) the diversified gaming company announced a $150 million share repurchase program sufficient to retire 7.5% of its outstanding shares. Strong operational performance and years of steady share repurchases have propelled shares to all time highs. The company will continue to return excess cash to its shareholders in the coming years.

During the last week, repurchase activity picked up as some large buyback announcements brought the total announced deal size to $7 billion, which makes it a rather active week in terms of buyback activity and size.

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.