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

by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of May 14 - 18, which turned out to be a reasonably 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.

Denny's (DENN) the operator of over 1,600 restaurants announced a 6 million share repurchase program, which is equivalent to almost $25 million. The 6 million shares to be repurchased come on top of the 1.6 million shares remaining under the 2011 buyback program which indicates the company has authorization to buy back up to 7.9% of its outstanding shares. Shares in the burger restaurant chain are up 7% year to date after the company reiterated its 2.0% same store sales growth target for the full year of 2012. Currently the company does not pay a dividend.

Tidewater (TDW) the offshore supplier of vessels to the energy industry announced a $200 million share repurchase program. Shares have fallen 7% year to date trading around the $46 mark after shares peaked at $63 in February this year. Worries about a global economic slowdown and the news that CEO Dean Taylor will leave the company send shares lower. The $200 million plan comes on top of the existing repurchase plan under which $143.5 million is remaining. In total the company is now authorized to buy back up to 15.0% of its outstanding shares. Tidewater currently pays a $0.25 quarterly dividend providing investors with an annual dividend yield of 2.2%

Assurant (AIZ) the provider of insurance products for property, health and employee benefits announced a new $600 million share repurchase program which comes on top of the $170 million still authorized from its current program. In total the company plans to buy back up to 26.1% of its shares outstanding. Shares in the company have lost 16% year to date after the release of the first quarter results. The company plans to take advantage of the recent decline by upping the pace of the repurchase agreements. Currently the company pays a quarterly dividend of $0.21 for an annual yield of 2.4%

Abercrombie & Fitch (ANF) the clothing retailer operating more than 1,000 stores in the US and internationally announced a 10 million share repurchase program after shares have fallen 27% year to date. Shares more than halved from their highs of $78 in 2011 after the company reported weak first quarter results as European sales are falling. The company expects full year same store sales to fall by a single-digit mark. The new plan which allows the company to buy back 12.2% of its outstanding shares comes on top of the 2.9 million shares still remaining under a current program. Currently the company pays a quarterly dividend of $0.17 for a 2.0% annual dividend yield.

Southwest Airlines (LUV) the domestic passenger airline announced a renewed $500 million share repurchase plan which comes on top of its current plan leaving the company authorized to buy back up to $675 million of its own shares, or 10.7% of shares outstanding. Shares trade virtually unchanged year to date at $8.30 per share after peaking at $10 in February. Recently the company announced that it lost money in its first quarter of 2012 after a particular soft February, but a recovery in March and April ensured the carrier is back on track for profitability. Currently the company pays a $0.0045 quarterly dividend for a dividend yield of 0.5%

Marvell Technology Group (MRVL) the semiconductor provider of data storage, wireless networking and mobile handsets announced a $500 million share repurchase program, sufficient to retire 6.8% of shares outstanding. Shares in the company have lost 7% year to date after the company lowered its outlook for its fourth quarter of its fiscal year of 2012. Shares which peaked at almost $17 in February retraced to $13 per share while the company pays a $0.06 quarterly dividend for a yield of 1.8%

During the last week, repurchase activity remained steady as a range of buyback announcements brought the total announced deal size to $2 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.