Yesterday, Standard & Poor's issued a press release noting "S&P 500 4th Quarter Buybacks Remain Strong at $105 billion. Included in the release is the absolute dollar amounts of dividend and stock buybacks paid out by S&P 500 companies since 2001. When looking at the dividend payouts and stock buybacks combined, the so called dividend and buyback yield as of 12/31/2006 is 5.15%. This compares to the dividend & buyback yield of 2.63% as of 3/31/2001.
- reported earnings have grown at a compound annual rate of 14.2% since the beginning of 2001.
- the dividend growth rate has grown at a 10.6% rate.
- buybacks have increased at a 22% rate over the six year time span 2001-2006.
- As detailed on the chart below, the dividend payments/stock buybacks have grown at nearly the same rate as reported earnings.
One piece of data that can be deduced from the data in the press release is that S&P 500 companies have returned 85% of reported earnings to shareholders via dividends and/or stock buybacks since the end of 2000. From a dividend growth perspective, these buybacks are not long term payment commitments versus increasing and ongoing dividend payments. By not committing to longer term payments, what does this imply about a company's view of its own prospective growth opportunities? On the other hand, S&P notes "the impact of share count reduction on earnings per share was lower during the fourth quarter as more companies used the extra shares on hand for M&A activity and stock options." M&A activity certainly would be more positive than buybacks instituted to offset option dilution.
(click on graph for larger image)
As noted in prior posts, the dividend payout ratio for the S&P 500 is running at near record lows. It would be nice to see some of the buyback cash diverted to dividend payments so as to project confidence in a company's longer term business prospects.