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

by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of May 21 - 25, 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.

Western Digital Corporation (WDC) the provider of solutions for collection and storage of digital content announced a $1.5 billion repurchase program, sufficient to retire 18.3% of its outstanding shares over the next five years. Despite a recent pull back shares are up 10% so far this year on the back of a strong guidance. The announcement is welcomed by investors who currently do not receive a dividend.

Riverbed Technology (RVBD) the provider of information technology solutions for wide area networks announced a $150 million share repurchase program, which in combination with the remainder of the August 2011 program is sufficient to retire 9.0% of shares outstanding. Shares in the company have lost some 30% so far this year after the company issued a second quarter outlook which came short of analysts expectations. Chief Executive Officer Kennelly says that "the company believes its current share price doesn't reflect its long term growth prospects" as a rationale for the increased program. The action "underscores confidence in our business and continued commitment to maximizing value for our shareholders", according to Kennelly.

Principal Financial Group (PFG) the provider of retirement saving, investment and insurance products announced a $200 million buyback program which is sufficient to retire some 2.7% of its outstanding shares. The program will be executed in the open market or through privately negotiated transaction from time to time, depending on market conditions. Shares of the financial conglomerate trade flat for the year in a $24-$25 range after peaking at $30 earlier this year. The modest size of the repurchase program comes on top of the quarterly dividend of $0.18, which provides investors with an annual dividend yield of 3.0%.

SEI Investments (SEIC) the global provider of investment processing and investment management solutions announced a $100 million share repurchase program which is sufficient to retire 3.1% of its outstanding shares. Over the last four years the company has steadily bought back some 6% of its outstanding shares. So far in 2012, the company has retired 2.6 million shares at a cost of $52 million. On top of the repurchase program the company pays a quarterly dividend of $0.15 for a dividend yield of 1.6%

Big Lots (BIG) the North American closeout retailer announced a $200 million share repurchase plan which is sufficient to retire about 8.1% of its outstanding shares. The retailer which sells a wide range of goods has steadily been retiring its own shares over the last couple of years, retiring some 17% of outstanding shares over the last four years alone. Shares in Big Lots trade virtually unchanged so far this year despite a 24% drop in late April when the retailer issued a bleak forecast for its second quarter and consequently lowered its full year outlook. Management took advantage of the fall in its share price in order to accelerate its repurchase program, a move welcomed by investors who currently do not receive a dividend.

Express (EXPR) the specialty apparel and accessory retailer announced a $100 million share repurchase plan which is sufficient to retire 6.0% of outstanding shares. The company hopes to execute the plan in the next 18 months. Express timed the purchase after shares have fallen from $26 in March to levels around the $19 mark by the end of May after the company missed on its first quarter earnings. Shares just barely trade above the $17 mark, the price at which the company went public two years ago.

Acxiom Corp (ACXM) the marketing technology company which enables marketers to manage audiences, increased its share repurchase plan to $150 million. Since August 2011 the company has bought back 6.1 million shares for $72 million. The remainder of the program is sufficient to retire some 7.1% of its shares outstanding in the coming twelve months. Including the 5% gain on Friday after the company announced the plan, shares have returned over 14% so far this year.


During the last week, repurchase activity remained steady as a range of buyback announcements brought the total announced deal size to $2.5 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.