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

by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of April 23 - 27, 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.

Illumina (ILMN) the developer and manufacturer of life science tools plans to buy back $250 million in its own stock. The program is sufficient to retire 4.6% of outstanding shares at the current level. The move comes after Roche Holding AG (OTCQX:RHHBF) walked away from its $6.8 billion offer for Illumina after a group of shareholders blocked the takeover attempt by appointing new directors. Roche decided that the $51 bid is no longer in the best interest of Roche's shareholders. Illumina's shares have jumped 46% year to date to $44 per share, but still trade significantly below levels of $55 when Roche announced the $51 bid for the company.

IBM the global information technology company increased its buyback program to $7 billion and simultaneously announced a 13% increase in its quarterly dividend to $0.85 per share. "Big Blue" announced that it would return up to $70 billion to its shareholders in the years through 2015. The announcement comes after shares trade just shy of their all time highs of $210 per share and would be sufficient to retire 3.0% of all outstanding shares based on the current valuation.

Owens Corning (OC) the producer of building material systems which focuses on composites and insulation of roofs announced an additional 10 million share repurchase program. The announcement comes on top of the 3.7 million shares still authorized under its current mandate, which together is sufficient to retire 11.3% of outstanding shares. Despite the slightly disappointing first quarter results, shares gained 5% over the week and trade just 10% below all time highs.

Wyndham Worldwide (WYN) the hospitality provider and owner of 30 hospitality brands announced a $750 million repurchase program while presenting its quarterly results. The program is sufficient to retire 10.1% of outstanding shares. The operator of "Days Inn" made the announcement after releasing a strong quarterly report which propelled its shares 6% higher on the week, now trading at all time highs of around $51 per share.

Akamai Technologies (AKAM) the cloud infrastructure provider announced a $150 million repurchase program which is sufficient to retire 2.5% of outstanding shares. The earnings report accompanied with a softer outlook send shares 11% lower over the week. The program which is modest in size, comes after shareholders have seen some 40% dilution in their holdings over the last three years.

Seagate Technologies (STX) the designer and manufacturer of hard disk drives announced a $2.5 billion additional repurchase program sufficient to retire 18.8% of all its outstanding shares. Furthermore the company still has $1 billion left under its current buyback authorization. In total the company is authorized to buy back a little over a quarter of all its outstanding shares. The announcement comes after the company's shares have almost tripled from levels of $10 at the end of 2011 and comes on top of a quarterly dividend of $0.25 which provides shareholders with an annual dividend yield of 3.4%

During the last week, repurchase activity picked up as some large buyback announcements brought the total announced deal size to $15 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.

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