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

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 |  Includes: CDE, FCN, GD, MA, MON, ROK
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of June 4th till June 8th 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.

Rockwell Automation (ROK) the provider of industrial automation power systems announced a $1 billion share repurchase program, sufficient to retire about 10.0% of its shares outstanding. The new program replaces an old $1 billion program authorized in 2007 which was almost completed. Investors are not impressed with the new repurchase program and shares have returned 1.5% this week, slightly underperforming the wider equity markets. Rockwell's board of directors furthermore declared an increase in its quarterly dividend to $0.47 for an annual dividend yield of 2.7%

General Dynamics (GD) the aerospace and defense company announced a 10 million share repurchase program. The program with a value of around $650 million is sufficient to retire 2.8% of its shares outstanding. Over the last four years General Dynamics has already retired about 8% of its outstanding shares. Investors appreciate the board of director's move. Shares have fallen 4% year to date amidst worries about the impact of governments' austerity measures on defense spending. General Dynamics currently pays a quarterly dividend of $0.51 for an annual dividend yield of 3.2%

Coeur d'Alene Mines (CDE) the silver producer announced a $100 million share repurchase program. The program which is sufficient to retire 5.9% of its shares outstanding comes after shares have seen a significant pullback in recent months. Shares have fallen from $30 in February to $19 at the moment after the company issued its annual production targets for 2012 which came in slightly below those of 2011. Currently the company does not pay a dividend.

FTI Consulting (FCN) the global business advisory firm announced a $250 million share repurchase program. The program is relatively large in size, sufficient to retire about 19.5% of its shares at the current price level. Over the last four years the company has retired approximately 20% of its outstanding sharea already. Shares have fallen 28% so far this year after investors were disappointed with the company's first quarter earnings. They do however applaud the move of the board of directors and send shares higher on the week. Currently the company does not pay a dividend.

Monsanto (MON) the provider agricultural products to farmers announced a $1 billion share repurchase program. Investors send shares 4% higher on the week despite the fact that the program is sufficient to retire merely 2.4% of its shares outstanding. Shares have already returned 13% so far this year after the company raised its full year 2012 guidance and made upbeat comments about the prospects for 2013. Monsanto pays a quarterly dividend of $0.30 per share for an annual dividend yield of 1.5%.

Mastercard (MA) the global payment and technology company announced a new $1.5 billion share repurchase program. The news of the share repurchase program, which represents 2.9% of shares outstanding, send shares 6% higher on the week. Shares in Mastercard have returned 12% so far this year after the company reaffirmed its full year guidance. Mastercard currently pays a quarterly dividend of $0.30 for an annual dividend yield of merely 0.3%

During the last week, repurchase activity picked up as total announced deal size came in close to $5 billion, making it a rather active weeks in terms of buyback activity.

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

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.