Standard & Poor's reported that share buybacks in the 4th quarter of 2008 feel 66% compared to the 4th quarter of 2007. Conversely, on a sequential basis, dividends actually trended higher to $62.19 billion versus $61.44 billion in the 3rd quarter of 2008. The fact aggregate dividends did trend higher in the 4th quarter is proof there are companies that continue to increase their dividend. Dividend growth companies tend to be more committed to continuing dividend payments versus a continued commitment to a stock buyback.
(click to enlarge)
"The need to conserve capital in the current recession, combined with the uncertainty of future cash flow, has made buybacks a high risk component for corporate planners. Due to the current market environment, we expect buybacks to remain weak with the potential for companies to use existing treasury shares (emphasis added) to satisfy options, as well as smaller M&A."
S&P prepared a report mid year 2007 noting the risk of these treasury shares on a company's balance sheet if the shares were not actually retired. If the shares are not retired they can be reissued and dilute existing shareholders, thus defeating the benefit of the original buyback. As Howard Silverblatt noted above, companies may use existing treasury shares to satisfy option execution.
S&P 500 Stock Buybacks Retreat 66% in Fourth Quarter; Off 42% in 2008
Standard & Poor's
By: Howard Silverblatt and Dave Guarino
March 26, 2009