With the $453 billion spent to-date on company buybacks, 2011 is poised to become the third-highest year for annual spending according to Birinyi Associates.
This annual spending will come in behind 2006 and 2007 when the buybacks occurred as stocks began large falls, notably in 2007 when the S&P 500 (NYSEARCA:SPY) incurred a 57 decline from October 2007 to March 2009. In the current buyback environment, today’s current prices are 15 percent lower and executives are less likely to face criticisms when stocks are trading at highs.
Positives for Buybacks
What does the increased spending mean? It can show a company’s vote of confidence and increased business prospects; however, some analysts see increases as evidence that companies don’t know what else to with their money in this current weak economy. Those bullish on the economy see the spending as a sign that a recession will be avoided.
For investors, buybacks can benefit them by reducing shares in the market while boosting a company’s earnings per share. They can also see additional equipment purchasing, spurring either corporate growth or dividend payouts.
Recent corporate buybacks
Berkshire Hathaway (NYSE:BRKA) began its repurchase program in September as the Standard & Poor’s 500-saw its fifth consecutive month of declines. Four days after the company announced its plans, Chairman and Chief Executive Warren Buffet said, “We are not in any double-dip recession or anything like that. I’ve got 70-some businesses, and most of them are doing very well.”
IBM (NYSE:IBM) spent $11.5 billion this year on shares, according to Bloomberg, with additional plans to buy $50 billion in shares through 2015 while Walt Disney (NYSE:DIS) came in as the highest U.S. company with its $16 billion buyback plans (20 percent of market value) announced in May, according to Birinyi.
And this month, Amgen (NASDAQ:AMGN) said it sold $6 billion in bonds to fund the purchase of $5 billion of shares coming from a $10 billion program.
Executives have faced past criticisms for buybacks when stocks are trading high but in the current environment, stock prices are lower and actions are less likely to precipitate market declines.