Cash-Rich Companies Choosing Stock Repurchases Rather Than Dividend Hikes

Includes: CMCSA, FIS, FL, FMC, JWN
by: The Value Investor

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.

FMC (NYSE:FMC) announced an additional $250 million repurchase program, representing 3.7% of outstanding shares. During the last couple of years, it already repurchased some 6% of its outstanding shares at very favorable levels. In comparison, the diversified chemical company pays about $40 million in dividends per year.

Nordstrom (NYSE:JWN) announced an additional $800 million share repurchase program, which represents 7.5% of outstanding shares. The fashion retailer still had $270 million left under its current repurchase program. The addition to the program is roughly four times its annual dividend payout.

Comcast (NASDAQ:CMCSA) initiated a $6.5 billion repurchase program, some 8.1% of its outstanding shares. The provider of high-speed internet and phone services has already repurchased 6% of outstanding shares since 2008 when it took advantage of the decline in its share price. To put the program in perspective, Comcast pays $1.2 billion in annual dividends.

Foot Locker (NYSE:FL) initiated a $400 million repurchase program which represents roughly 10% of shares outstanding. This announcement comes after the shares have rallied some 45% in the last year. The retailer in footwear and apparel pays an annual dividend of around $100 million.

Fidelity National Information Services (NYSE:FIS) announced it will repurchase $1 billion which is 11.1% of outstanding shares. The program is immense given the annual dividend payment of about $60 million which the global provider of banking and payment technologies currently pays. Fidelity National Information takes advantage of the recent weakness the company has experienced in its stock price over the last year.

Just in the last week, these five companies above announced new or additional repurchase plans with a combined worth of $9 billion. This is comparatively large given the annual $1.6 billion in dividends which these companies offer per year.

Cash-rich companies still refuse to significantly raise long-term dividends, which could send a powerful long-term trust signal. Rather, they use one-time repurchase agreements with far less signaling power as a dispersion tool of excess cash to its shareholders.

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