2010 Buybacks Set % and $ Record - But Will Investors Bite Again?

Posted by: Howard Silverblatt on March 23, 2011

The headline news is that S&P 500 companies spent $299 billion on stock buybacks in 2010, up $161 billion or 117% from the $138 billion they spent in the 2009 - both the percentage and dollar value increase are record highs. The details explains the reason for the headline is because of the 76.5% decline in buybacks (2009 from 2007, down $451B), with the 117% or $161 billion bounce back resulting in the year-over-year record. We remain, however, at half of the 2007 $589B level.

The attached reports give the details, along with charts, tables, and some issue level for where we have been. To see the report click here Buybacks_20110323.doc

For the first quarter of 2011 (no reporting yet), I believe companies continued to be cautious and, in general, purchased more shares than needed for options, enhancing Q1 EPS.
For the remainder of 2011, subject to market conditions (no major crisis), it appears investors are once again (slightly) positive on buybacks, with companies willing to use their vast cash reserves to support stock prices and push EPS up.

If investors get on board the buyback wagon, meaning they buy issues of companies that increase buybacks and do SCR, and bid them up based on their higher EPS, then companies will increase their programs and we may well be in for round two of the buyback bonanza.
However, if strong investor reaction does not materialize, I believe companies will continue to protect their earnings, as well as to purchase small amounts of additional shares, helping their earnings per share to grow - under the radar scope of the headline news.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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