A company with excess capital will sometimes announce a stock buyback plan as one of many ways to return the capital to shareholders. A stock buyback, also known as a "share repurchase", is a company's buying back its shares from the marketplace. You can think of a buyback as a company investing in itself, or using its cash to buy its own shares. The idea is simple: because a company can't act as its own shareholder, repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each investor increases because there are fewer shares, or claims, on the earnings of the company.
While stock buybacks does reward investors if timed correctly, here are times when a company may not follow through with the complete repurchase plan. The one way to track the progress of a proposed share repurchase plan it to track the number of shares outstanding. If the number of shares outstanding declines over the time period, then you can track the amount of shares in the market. The table below displays 3 Bullish stocks that have reduced the number of outstanding shares by more than 25% over the past 10 years.
IBM Shares Outstanding data by YCharts
International Business Machines (NYSE:IBM), the global technology giant, has decreased its total outstanding shares by 32% over the last ten years with an aggressive share buyback program. The company spent about $15 billion on share repurchases in 2011. On April 24, 2012, IBM authorized $7 billion in additional funds for use in the company's stock repurchase program. This amount is in addition to approximately $5.7 billion remaining at the end of March from a prior authorization. With this new authorization, IBM will have approximately $12.7 billion for its stock repurchase program. This is 5.83% of the $218 billion market cap of IBM. Since 2000, IBM has returned over $137 billion to shareholders in the form of dividends and share repurchases. IBM has a 10-year total return on price of 189%. IBM has an equity summary score of 8.5 out of 10 for a Bullish outlook.
Amgen (NASDAQ:AMGN), a large biotechnology firm, has decreased its total outstanding shares by 25% over the last ten years. In November 2011, AMGN announced a buy back up to $5 billion of its shares, or roughly 10% of shares outstanding, by issuing new debt to help fund the repurchases. In 2011, AMGN repurchased 144 million of its shares, representing 15% of shares outstanding, at a cost of $8.3 billion. In the first quarter of 2012, AMGN repurchased 21 million shares at a cost of $1.4 billion. In April 2011, AMGN started paying a dividend, as part of a capital allocation strategy that included 20% of adjusted net income for dividends and up to 40% to be used for share repurchases. AMGN has a 10-year total return on price of 67%. AMGN has an equity summary score of 9.9 out of 10 for a VERY Bullish outlook.
AmerisourceBergen (NYSE:ABC), one of the world's largest pharmaceutical services companies, has decreased its total outstanding shares by 38% over the last ten years. ABC authorized a new $750 million share repurchase program on May 10, 2012. This is 8.17% of the $9.18 billion market cap of ABC. The Company has completed its previous $750 million share repurchase program, which was authorized on August 11, 2011. AmerisourceBergen expects to use the new program to repurchase its outstanding shares of common stock, subject to market conditions. To date in fiscal year 2012, which ends September 30, 2012, the Company has spent $500.0 million to repurchase its outstanding shares of common stock. ABC has an equity summary score of 8.1 out of 10 for a Bullish outlook.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.