Cash-Rich Companies Protecting EPS From Dilution….
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“The 221% increase represents a remarkable one-year turnaround for S&P 500 stock buybacks,” says Howard Silverblatt, Senior Index Analyst at S&P Indices. “We have effectively moved from a period when companies were reluctant to touch their stock (Q2 2009), to a point where companies are now protecting EPS dilution via share count reduction.”
S&P Indices also determined that during the second quarter of 2010, 257 issues participated in stock buyback programs, up from 251 in the first quarter of this year and 214 that participated in the fourth quarter of 2009. While there was broader participation, buybacks again remained top-heavy with 20 issues accounting for 50.3% of the buyback activity, down from 59.8% in the first quarter. Additionally, for the fifth quarter in a row, none of the issues made the top 20 historical list for largest stock buybacks.
On a sector basis, S&P Indices notes that Information Technology continues to dominate the buyback market, accounting for 27.3% of all buybacks with Health Care now accounting for 19.0% and Consumer Staples for 18.7%. Both Telecommunications and Utilities remain low-key players at 0.19% and 0.69%, respectively.
After 39 quarters of Share Count Reduction (SCR) through buybacks, Exxon shares increased in the second quarter, as it was restricted on buying additional shares during the proxy solicitation of XTO Energy. Consumer Staples issue, Wal-Mart, increased their buybacks for the sixth quarter in a row spending $4.15 billion in the second quarter, a new quarterly record for the company. Of note was Microsoft’s $3.9 billion expenditure (up from $2.0 billion in the first quarter), given reports that they may use debt to pay for buybacks ($9.3 billion over the past year) and dividends ($5.5 billion).
“For the rest of 2010, S&P Indices sees buyback growth and expenditures outpacing dividends,” concludes Silverblatt. “We also expect companies to spend in excess of $300 billion on stock buybacks for the year, up from the $137.6 billion spent in 2009.”
| S&P 500, $ U.S. BILLIONS | ||||||
| PERIOD | MARKET | OPERATING | AS REPORTED | DIVIDEND & | ||
| VALUE | EARNINGS | EARNINGS | DIVIDENDS | BUYBACKS | BUYBACK | |
| $ BILLIONS | $ BILLIONS | $ BILLIONS | $ BILLIONS | $ BILLIONS | YIELD | |
| 06/30/2010 | $9,323 | $189.76 | $178.00 | $50.44 | $77.64 | 4.43% |
| 03/31/2010 | $10,560 | $174.91 | $157.85 | $49.28 | $55.26 | 3.38% |
| 12/31/2009 | $9,928 | $152.77 | $135.14 | $50.40 | $47.82 | 3.37% |
| 09/30/2009 | $9,337 | $139.37 | $130.37 | $47.21 | $34.85 | 3.71% |
| 06/30/2009 | $8,045 | $120.85 | $118.22 | $47.63 | $24.20 | 5.17% |
| 03/31/2009 | $6,928 | $87.78 | $65.29 | $51.73 | $30.78 | 7.13% |
| 12/31/2008 | $7,852 | -$0.78 | -$202.11 | $62.19 | $48.12 | 7.48% |
| 09/30/2008 | $10,181 | $142.90 | $86.16 | $61.44 | $89.71 | 6.73% |
| 06/30/2008 | $11,163 | $148.43 | $112.15 | $61.94 | $87.91 | 6.88% |
| 03/30/2008 | $11,511 | $144.63 | $135.24 | $61.72 | $113.90 | 7.25% |
| 12/31/2007 | $12,868 | $133.38 | $68.53 | $67.09 | $141.71 | 6.49% |
| 09/30/2007 | $13,470 | $184.13 | $133.66 | $61.21 | $171.95 | 5.89% |
| 06/30/2007 | $13,350 | $213.65 | $194.30 | $59.76 | $157.76 | 5.44% |
| S&P Indices | |||||||
| S&P 500 SECTOR BUYBACKS | |||||||
| SECTOR $ MILLIONS | Q2,’10 | Q1,’10 | Q2,’09 | Q3,’07 | CHG OVR | CHG OVR | CHG FR |
| (low) | (high) | Q1,’10 | Q2,’09 | Q3,’07 | |||
| Consumer Discretionary | $12,816 | $6,197 | $2,350 | $34,902 | 106.80% | 445.42% | -63.28% |
| Consumer Staples | $14,488 | $10,678 | $4,013 | $16,088 | 35.68% | 261.02% | -9.95% |
| Energy | $3,127 | $2,986 | $5,343 | $14,717 | 4.73% | -41.48% | -78.75% |
| Financials | $4,275 | $5,455 | $1,170 | $27,762 | -21.63% | 265.37% | -84.60% |
| Healthcare | $14,729 | $9,395 | $4,699 | $18,660 | 56.78% | 213.43% | -21.06% |
| Industrials | $5,479 | $3,304 | $1,681 | $17,521 | 65.86% | 225.97% | -68.73% |
| Information Technology | $21,161 | $16,207 | $4,757 | $23,904 | 30.57% | 344.82% | -11.48% |
| Materials | $883 | $735 | $159 | $6,503 | 20.02% | 454.66% | -86.43% |
| Telecommunication Services | $145 | $70 | $13 | $3,947 | 107.50% | 1026.64% | -96.33% |
| Utilities | $537 | $232 | $10 | $7,943 | 131.36% | 5493.75% | -93.24% |
| TOTAL | $77,640 | $55,259 | $24,195 | $171,947 | 40.50% | 220.89% | -54.85% |
| S&P 500 20 LARGEST Q2 2010 BUYBACKS, $ MILLIONS | |||
| COMPANY | SECTOR | Q2 2010 | BUYBACKS |
| Q4,’04-Q2,’10 | |||
| Wal-Mart Stores | Consumer Staples | $4,145 | $27,343 |
| Intl Bus. Machines | Information Technology | $4,104 | $61,730 |
| Microsoft Corp | Information Technology | $3,839 | $87,639 |
| Procter & Gamble | Consumer Staples | $2,587 | $49,233 |
| PepsiCo Inc | Consumer Staples | $2,573 | $18,340 |
| Hewlett-Packard | Information Technology | $2,568 | $44,019 |
| Cisco Systems | Information Technology | $2,424 | $45,126 |
| DIRECTV | Consumer Discretionary | $1,723 | $10,081 |
| Gilead Sciences | Healthcare | $1,692 | $5,855 |
| Exxon Mobil | Energy | $1,568 | $142,817 |
| WellPoint Inc | Healthcare | $1,493 | $19,832 |
| Travelers Cos | Financials | $1,399 | $12,443 |
| Merck & Co | Healthcare | $1,297 | $7,756 |
| Disney (Walt) Co | Consumer Discretionary | $1,249 | $20,004 |
| QUALCOMM Inc | Information Technology | $1,178 | $8,783 |
| Philip Morris Intl | Consumer Staples | $1,104 | $13,709 |
| Biogen Idec | Healthcare | $1,032 | $6,769 |
| Medco Health Solutions | Healthcare | $1,024 | $9,199 |
| McKesson Corp | Healthcare | $1,016 | $4,130 |
| Genzyme Corp | Healthcare | $1,000 | $1,788 |
| Top 20 | $39,014 | $596,597 | |
| S&P 500 | $77,640 | $2,046,776 | |
| Top 20 % of S&P 500 | 50.25% | 29.15% | |
| S&P 500 INDUSTRIAL (OLD) CASH AND EQUIVALENT LEVELS | ||||
| Values are in $ million and are NOT index values; no adjustment for float | ||||
| YEAR | CASH & EQUIVALENT | % HELD | SHORT-TERM | CASH % OF |
| $ MILLIONS | AS CASH | SECURITIES | MARKET | |
| VALUE | ||||
| 06/30/2010 | $842,494 | 65.74% | 34.26% | 11.59% |
| 03/31/2010 | $836,771 | 67.10% | 32.90% | 10.14% |
| 12/31/2009 | $831,188 | 70.49% | 28.85% | 9.98% |
| 9/30/2009 | $820,287 | 68.28% | 31.22% | 10.70% |
| 6/30/2009 | $772,687 | 67.55% | 32.10% | 11.48% |
| 3/31/2009 | $664,778 | 72.20% | 27.80% | 11.08% |
| 12/31/2008 | $654,613 | 74.10% | 25.40% | 9.94% |
| 9/30/2008 | $647,813 | 74.63% | 25.37% | 7.79% |
| 6/30/2008 | $648,436 | 74.73% | 25.27% | 7.04% |
| 3/31/2008 | $615,504 | 72.41% | 27.12% | 6.67% |
| 12/31/2007 | $609,664 | 69.84% | 29.79% | 5.93% |
Source: ETFWorld – S&P Indices
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