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

Includes: BMY, GES, HFC, UTHR
by: The Value Investor

This week, I will run you through the most important buyback announcements for the week of June 25 till June 29, 2012, 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.

Guess? Inc. (NYSE:GES), the designer and distributor of family clothing, announced a $500 million share repurchase program. The new program comes in addition to the existing $250 million share repurchase program under which $19 million is still available for repurchases. Combined, the company has an authorization to retire 19.0% of its shares outstanding. Shares ended the week 6% higher on the back of the positive announcements, marking year to date gains of 2%. Shares have fallen significantly after the company warned for a soft first quarter of its fiscal year 2013 in the beginning of March. The share repurchases come on top of the quarterly dividend of $0.20, which provides shareholders with an annual dividend yield of 2.6%.

Bristol-Myers Squibb Company (NYSE:BMY), the global biopharmaceutical company, announced a $3 billion share repurchase program. The repurchase program which is sufficient to retire about 5.0% of its outstanding shares comes in addition to its 2010 $3 billion repurchase program under which $340 million is still authorized. The company expects to execute its new plan in the coming two years. Bristol Myers has gradually retired some 15% of its shares outstanding in the past four years. Shares in Bristol Myers ended the week 1.5% higher after it agreed to acquire Amylin Pharmaceuticals, Inc. (AMLN) in a deal valuing the maker of diabetes therapies at $5.3 billion. On top of the repurchases that will boost earnings per share, shareholders currently receive a quarterly dividend o $0.34 for an annual dividend yield of 3.8%.

United Therapeutics Corporation (NASDAQ:UTHR), the biotechnology company focused on the development and commercialization of products serving the medical needs for patients with chronic medical conditions, announced a $100 million share repurchase program. The program, which becomes effective by the end of July, will be executed in the coming year and is sufficient to retire 3.8% of its shares outstanding. The new repurchase program replaces the company's current share repurchase program of $300 million which has been completed in the second quarter of 2012. Shares of United Therapeutics rose 5% so far in 2012 trading near the upper range of its $40-$50 trading range. Investors welcome the new repurchase plan, sending shares 3% higher over the last week. Currently, the company does not pay a dividend.

HollyFrontier Corp. (NYSE:HFC), the petroleum refiner, announced a $350 million share repurchase program. The program, which is sufficient to retire about 4.8% of its shares outstanding, comes in addition to the $60 million still remaining under its current $350 million repurchase plan. Shares in HollyFrontier have returned 51% so far this year after the company engaged in a very shareholder-friendly strategy. The company has announced $700 million in share repurchases so far in 2012. On top of that, it also announced two special cash dividend, each $0.50 per share. Finally, it also pays a quarterly regular dividend of $0.15, providing investors with an annual dividend yield of 1.7%

During the last week, repurchase activity remained high, as total announced deal size came in close to $4 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 mentioned, and no plans to initiate any positions within the next 72 hours.